SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from
____________________ to _______________________
Commission file number 0-5704
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MAYNARD OIL COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 75-1362284
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(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8080 N. Central Expressway, Suite 660, Dallas, Tx 75206
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 891-8880
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $.10 Par Value
----------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ]
While it is difficult to determine the number of shares owned by non-
affiliates (within the meaning of the term under the applicable regulations
of the Securities and Exchange Commission), the Registrant estimates that
the aggregate market value of its Common Stock held by non-affiliates on
March 18, 1996 was $14,614,000 (based upon an estimate that 43.5% of the
shares are so owned by non-affiliates and upon the closing price for the
Common Stock as reported by NASDAQ (NMS)).
The number of shares outstanding of the Registrant's $.10 par value common
stock as of March 18, 1996 was 4,889,920 shares.
The following documents are incorporated into this Form 10-K by reference:
Proxy Statement for Annual Meeting of Stockholders to be held on
May 21, 1996 - Part III of Form 10K.
PART I.
ITEM 1. BUSINESS
THE COMPANY
Maynard Oil Company is a Delaware corporation which was
organized in 1971 to continue the oil and gas operations
conducted on an individual basis by its founders, including Mr.
James G. Maynard, its Chairman of the Board and Chief Executive
Officer. The Company's principal executive office is located at
8080 N. Central Expressway, Suite 660, Dallas, Texas 75206, and
its telephone number is (214) 891-8880. Unless the context
requires otherwise, as used herein the term "Company" refers to
Maynard Oil Company and its subsidiaries.
The Company's principal line of business is the production
and sale of, and exploration and development of, crude oil and
natural gas. The Company's oil and gas operations are conducted
exclusively in the United States, primarily in the states of
Texas and Oklahoma.
RECENT ACQUISITION ACTIVITIES
Since January 1, 1995, the Company has purchased two sizable
groups of producing oil and gas properties.
In March, 1995, the Company purchased 200 producing wells
located in the Permian Basin of West Texas from a major oil
company for total cash consideration $10,500,000. The Company
utilized $1,000,000 from its own cash resources and financed the
balance, $9,500,000, through an amended term loan arrangement
with Bank One, Texas. Total proved reserves were estimated to be
.99 million barrels of oil and 6.5 billion cubic feet of gas
(BCF).
During September, 1995 one prospect acquired in March was
sold generating proceeds of $2,985,935 and a gain of $817,794.
On December 21, 1995, the Company purchased an interest in
250 producing wells in the Garza Field of West Texas for cash
consideration of $18,750,000. The Company provided $5,750,000
from its own cash resources and entered into a new term loan
arrangement with Bank One, Texas for the balance. Total proved
reserves were estimated to be 2.46 million barrels of oil and .3
BCF of gas.
The new bank loan agreement, entered into on December 20,
1995 in connection with the Garza acquisition, provides for the
repayment of the outstanding $26,062,500 over a five year period
with a maturity date of January 1, 2001. (See Note 4 of the Notes
to the Consolidated Financial Statements). The Company has
certain significant properties remaining unmortgaged, and
consequently, has further borrowing capacity available for future
projects.
OIL AND GAS OPERATIONS
The Company is an independent oil and gas company, engaged
primarily in the production and exploration phases of the oil and
gas business. Company operations include acquiring, exploring,
developing, and operating crude oil and natural gas properties.
The Company seeks to accomplish its overall goal of
increasing hydrocarbon reserves and cash flow by selectively
acquiring and exploiting producing oil and gas properties. When
possible, the Company acquires producing properties on which it
can act as operator, and thus, supervise production and
development activities.
As mentioned in the 1994 annual report, the Company has
invested approximately $30.1 million in seven acquisitions over
the preceding five years, which has added estimated proved
reserves of 4.6 million barrels of oil and 2.1 billion cubic feet
(BCF) of natural gas. During 1995, the Company was successful in
consummating two other producing property acquisitions, investing
$29.25 million and adding estimated proved reserves of 3.45
million barrels of oil and 6.8 BCF of natural gas.
The availability of a ready market for the sale of oil and
gas from the Company's wells depends on numerous factors beyond
the control of the Company, including the amount of domestic
production, the importation of oil, the proximity of the
Company's property to natural gas pipelines and the capacity of
such pipelines, the market for other competitive fuels,
fluctuations in seasonal demand, and governmental regulations
relative to hydrocarbon production and pricing. The production
of oil and gas is also subject to the laws of supply and demand,
and therefore, is subject to purchaser cutbacks and price
reductions during periods of oversupply. At December 31, 1995
almost 74% of the Company's estimated proved reserves, as well as
68% of the Company's 1995 production, were attributable to crude
oil and condensate on a net equivalent barrel basis (net
equivalent barrel "NEB" uses a conversion ratio of six thousand
cubic feet of gas (MCF) to one net equivalent barrel of oil) and
consequently, the Company is primarily impacted by oil markets.
The market price for natural gas has fluctuated
significantly from month to month and year to year for the past
several years. The Company cannot predict gas price movements
with any certainty.
During the year ended December 31, 1995, three customers,
Total Petroleum, Koch Industries, and Ashland Inc., accounted for
approximately 21%, 18%, and 14%, respectively, of total
consolidated oil and gas revenues. The Company does not believe
it would be adversely affected by the loss of any of its oil or
gas purchasers.
Except for curtailed exploration and production activity
occasionally experienced in severe weather and normal
curtailments of gas sales in summer months, the Company does not
consider its business to be seasonal and does not carry
significant amounts of inventory.
During 1995, a total of twenty-four wells were drilled, five
exploratory wells, twelve development wells, and seven water
injection wells to service waterflood operations. Below is a
brief description of the work completed during the year and the
results thereof.
Fullerton Field, Andrews County, Texas - this area
represented the most significant development activity for the
second succeeding year. Five successful development oil wells
were drilled in a secondary recovery project which is owned 100%
by the Company. Current production exceeds 400 barrels of oil
per day.
Of the remaining seven development wells, two were
horizontal wells drilled in the Medrano Field in Caddo County,
Oklahoma and one was a horizontal development well offsetting a
1995 exploratory discovery in Stephens County, Texas. A gas well
was added in the Destino Field in Duval County, Texas and two
infill wells were drilled in the Claytonville Unit located in
Fisher County, Texas. The seventh development well was testing
commercial quantities of gas at year end in the Knox Field of
Grady County, Oklahoma, where the Company owns a 10% working
interest.
The Company's 1995 exploratory drilling was accomplished on
plays generated from three dimensional seismic projects. Three
of the five exploratory tests resulted in successful oil wells.
The Hankins #1 and the Fisher #1 were drilled in the Hardeman
Basin area, where the Company has been active for the last two
years. The Hankins #1, located in Jackson County, Oklahoma,
resulted in a flowing oil well producing 160 barrels of oil per
day (BOPD). The Fisher #1, located in Hardeman County, Texas, is
currently pumping 62 BOPD. Maynard owns a 25% and 18.75% working
interest, respectively, in these two wells. The third successful
exploratory well, the County Line #1, was drilled in Stephens
County, Texas and is flowing 150 BOPD and 1.2 million cubic feet
of gas per day. The Company owns a 12.5% working interest in
this well.
GENERAL
The oil and gas business involves intense competition in all
of its phases and, because of its size, the Company is not a
significant competitive factor in the industry. In its efforts
to acquire property rights, the Company competes with many
companies having access to substantially greater financial
resources and larger technical staffs.
The Company's oil and gas exploration effort often involves
exploratory drilling on unproven acreage involving high risks.
There is no assurance that any oil or gas production will be
obtained, or that such production, if obtained, will be
profitable. The cost of drilling, completing and operating wells
is often uncertain. Drilling may be curtailed or delayed as a
result of many factors, including title problems, weather
conditions, delivery delays, and shortages of pipe and equipment.
The Company's operations are subject to potential hazards,
inherent in the exploration for and production of hydrocarbons,
including blowouts and fires. These and other events can cause a
suspension of drilling operations, severe damage to equipment or
surrounding property, personal injury, and perhaps even a loss of
life. The Company may be subject to liability for pollution and
other damages and is subject to statutes and regulations relating
to environmental and other matters. While the Company maintains
insurance against certain of these risks, there are certain risks
against which it cannot insure, or which it may elect not to
insure due to premium costs, or for other reasons. Substantial
uninsured liabilities to third parties may be incurred.
The oil and gas operations of the Company are subject to
local, state and Federal environmental regulations. To date,
compliance with these regulations by the Company has had no
material effect on the Company's capital expenditures. The
Company is unable to assess or predict at this time the impact
that compliance with such environmental regulations may have on
its future capital expenditures, earnings and competitive
position. The Company presently estimates that it will not make
any material capital expenditures for environmental control
facilities for its fiscal year ending December 31, 1996.
Many facets of the Company's operations are subject to
governmental regulations. All of the Company's oil and gas
properties are located in states in which oil and gas production
is regulated by state production and conservation laws and
regulations. These laws and regulations in many instances also
require permits for the drilling of wells, the spacing of wells,
prevention of waste, conservation of oil and natural gas and
various other requirements.
The Company's activities are subject to taxation at all
levels of government, including taxes on income, severance of
minerals, and payroll. Laws governing taxation, protection of
the environment, crude oil and natural gas operations and
production, and other crucial areas are all subject to
modification at any time.
At March 18, 1996, the Company employed approximately 37
persons, including one geologist and five petroleum engineers.
ITEM 2. PROPERTIES
The Company's executive offices are presently located at
8080 N. Central Expressway, Suite 660, Dallas, Texas occupying
approximately 11,300 square feet of space under a lease agreement
which expires in April, 2000.
The Company's principal property holdings consist of
leasehold interests in oil and gas properties located in the
United States, primarily in Oklahoma and Texas. The leaseholds
are continued in force so long as production from lands under
lease is maintained. The Company believes that it has
satisfactory title to its oil and gas properties. Such
properties are subject to customary royalty interests, liens
incident to operating agreements, liens for current taxes, and
other burdens and minor encumbrances, easements, and
restrictions. The Company believes that such burdens do not
materially detract from the value of the properties or materially
interfere with their use in the operation of the Company's
business. The Company has pledged certain of its oil and gas
properties to secure its term loan.
ESTIMATED PROVED RESERVES,
FUTURE NET REVENUES AND PRESENT VALUE
Reflected below are the estimated quantities of proved
developed and undeveloped reserves of crude oil and natural gas
owned by the Company as of December 31, 1995, 1994, and 1993.
Such reserve information has been prepared by the Company's staff
of petroleum engineers and audited by the independent petroleum
consulting firm of Netherland, Sewell, and Associates, Inc. No
reserve reports with respect to the Company's proved net oil or
gas reserves were filed with any Federal authority or agency
during the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
December 31
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1995 1994 1993
-------------------- -------------------- ---------------------
Oil(MB) Gas(MMCF) Oil(MB) Gas(MMCF) Oil(MB) Gas(MMCF)
------- --------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Proved Developed 8,712.8 18,214.8 5,485.9 14,355.6 2,907.4 15,004.7
Proved Undeveloped 159.7 649.2 667.2 595.8 1,106.6 853.9
------- -------- ------- -------- ------- --------
Total Proved Reserves 8,872.5 18,864.0 6,153.1 14,951.4 4,014.0 15,858.6
======= ======== ======= ======== ======= ========
</TABLE>
The following table summarizes the future net revenues,
using current prices and costs as of the dates indicated, as well
as the present value, discounted at 10%, of such future net
revenues from estimated production of proved reserves of crude
oil and natural gas as of December 31, 1995, 1994, and 1993. Oil
and gas prices used in the tabulation of the amounts below are
based on the price received for each lease at December 31, of the
appropriate year. The weighted average prices at December 31,
1995, 1994, and 1993 respectively, used in the estimates were
$18.13, $16.06, and $11.36 per barrel of oil and $1.65, $1.62,
and $2.22 per mcf of natural gas. Lease and well operating costs
are based upon actual operating expense records.
<TABLE>
<CAPTION> December 31
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1995 1994 1993
---------------------- --------------------- ---------------------
Future Present Future Present Future Present
<S> Net Value Net Value Net Value
Expressed in 000's Revenue @ 10% Revenue @ 10% Revenue @ 10%
------- ------- ------- ------- ------- -------
<C> <C> <C> <C> <C> <C>
Proved Developed $96,297 $65,235 $54,057 $36,798 $35,689 $24,035
Proved Undeveloped 2,478 1,075 5,673 3,159 4,295 1,746
------- ------- ------- ------- ------- -------
Total Proved Reserves $98,775 $66,310 $59,730 $39,957 $39,984 $25,781
======= ======= ======= ======= ======= =======
</TABLE>
PRODUCTION, SALES PRICES AND COSTS
The following table sets forth the Company's net oil and gas
production, average sales prices and production costs for the
three years ended December 31, 1995.
December 31
---------------------------------
1995 1994 1993
---- ---- ----
Production:
Oil (MB) 957.9 558.3 557.7
Gas (MMCF) 2,720.4 2,390.3 2,717.2
Average Sales Prices:
Oil (per BBL) $16.98 $15.47 $16.15
Gas (per MCF) $ 1.57 $ 1.94 $ 2.16
Average Production Costs:
Per net equivalent barrel
of oil (1)(2) $ 5.98 $ 5.20 $ 5.37
(1) Six MCF of gas equals one net equivalent barrel ("NEB").
(2) Production costs include severance and advalorem taxes, if
applicable, and lease operating expenses including workover
costs.
PRODUCTIVE WELLS AND ACREAGE
As of December 31, 1995, the Company owned an interest in
approximately 1,273 gross (330.3 net) wells, of which 1,208 gross
(310.3 net) are oil wells and 65 gross (20.0 net) are gas wells,
located on approximately 42,093 gross (24,411 net) producing
acres.
UNDEVELOPED ACREAGE
The following table sets forth the Company's gross and net
undeveloped acreage as of December 31, 1995.
Undeveloped Acreage
------------------
Gross Net
----- -----
Colorado . . . . . . . . . . . . . . . 80 10
Louisiana . . . . . . . . . . . . . . . 80 40
North Dakota . . . . . . . . . . . . . 62 4
Oklahoma . . . . . . . . . . . . . . . 2,558 619
Texas . . . . . . . . . . . . . . . . . 9,408 3,307
Wyoming . . . . . . . . . . . . . . . . 2,256 794
------ -----
Total 14,444 4,774
====== =====
DRILLING ACTIVITY
The following table sets forth the results of the Company's
drilling activity during the three years ended December 31, 1995.
<TABLE>
<CAPTION>
Exploratory Development Total
---------------- ------------------ -------------------
Gross Net Gross Net Gross Net
----- ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995
Productive 3 .563 12 5.465 15 6.028
Dry 2 .250 0 .000 2 .250
--- ----- --- ------ --- ------
Total 5 .813 12 5.465 17 6.278
=== ===== === ====== === ======
December 31, 1994
Productive 3 .750 19 17.049 22 17.799
Dry 8 3.130 0 .000 8 3.130
--- ----- --- ------ --- ------
Total 11 3.880 19 17.049 30 20.929
=== ===== === ====== === ======
December 31, 1993
Productive 0 .000 7 5.550 7 5.550
Dry 4 .925 1 .500 5 1.425
--- ----- --- ------ --- -----
Total 4 .925 8 6.050 12 6.975
=== ===== === ====== === =====
</TABLE>
At March 18, 1996 the Company had two gross (2.00 net)
development wells in the process of being drilled.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in minor lawsuits that have
arisen in the ordinary course of business. The Company does not
expect any of these to have a material adverse effect on the
Company's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Company's executive officers
as of March 18, 1996, is set forth in the table below.
Name Position Age Since
----- -------- --- -----
James G. Maynard Chairman of the Board, 69 1971
Chief Executive
Officer and Treasurer
Glenn R. Moore President and Chief 58 1982
Operating Officer
L. Brent Carruth Vice President of 62 1984
Operations
Kenneth W. Hatcher Vice President of 52 1983
Finance
Linda K. Burgess Corporate Secretary 47 1984
and Controller
Mr. Maynard has been a director since 1971 and engaged in
oil and gas exploration as an independent operator and private
investor for the past 40 years.
Mr. Moore has over 30 years experience in domestic and
foreign oil and gas exploration and production. Prior to joining
the Company in November, 1982, Mr. Moore served as President of
Shannon Oil and Gas, Inc. and Hanover Petroleum Corporation.
Mr. Carruth has over 30 years of petroleum engineering
experience. Prior to joining the Company in January, 1984, he
served for one year as Vice President of Operations of Cordova
Resources. Preceding that, Mr. Carruth was a petroleum
consultant for three years and served as Manager of Engineering
of Texas Pacific Oil Company for eight years.
Mr. Hatcher has over 25 years of finance and accounting
experience in the oil and gas industry and is a Certified Public
Accountant. Prior to joining the Company in February, 1983, Mr.
Hatcher served as Controller and Vice President of Finance of
Shannon Oil and Gas, Inc. for three years and as Controller and
Vice President of Hanover Petroleum Corporation for four years.
Ms. Burgess has in excess of 20 years of oil and gas
accounting experience. Prior to joining the Company in May,
1984, Ms. Burgess served as Controller for Trans-Western
Exploration Inc. for four years and as Controller for Energy
Resources Oil and Gas for three years.
Each officer's term of office expires on the date of the
next annual meeting of the Board of Directors, or until his
earlier resignation or removal. There are no family
relationships among the executive officers listed, and there are
no arrangements or understandings pursuant to which any of them
were elected or appointed as officers.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter
market, NASDAQ trading symbol "MOIL". The high and low sales
prices for each quarterly period during the two years ended
December 31, 1995, were as follows:
<TABLE>
<CAPTION>
1995 High Low 1994 High Low
---- ---- --- ---- ---- ---
<S> <C> <C> <C> <C> <C>
First Quarter $ 5 $4 1/8 First Quarter $5 1/2 $4 5/8
Second Quarter 6 1/2 4 1/2 Second Quarter 5 1/2 4 1/2
Third Quarter 6 1/2 5 3/4 Third Quarter 5 1/2 5
Fourth Quarter 7 5 3/4 Fourth Quarter 5 1/4 4 1/2
</TABLE>
As of March 18, 1996, the Company had approximately 1,050
shareholders of record.
The Company has not paid any dividends on its Common Stock
in the past, nor does it plan to pay dividends in the foreseeable
future. The Company's ability to pay dividends is currently
restricted under its Loan Agreement with Bank One, Texas.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial
data to highlight significant trends in the Company's financial
condition and operating results for the periods indicated. The
selected financial information presented should be read in
conjunction with the consolidated financial statements and
related notes appearing elsewhere in this Report and the
Management's Discussion and Analysis set forth under Item 7
below. All amounts are expressed in thousands, except per share
information.
<TABLE>
<CAPTION>
December 31 <F1>
------------------------------------------------------------
1995 1994 1993 1992 1991
<S> ---- ---- ---- ---- ----
Total revenue from <C> <C> <C> <C> <C>
oil and gas $20,710 $13,359 $15,023 $17,115 $18,713
Income before income
taxes and discontinued
operations 4,354 1,196 1,452 3,669 805
Income (loss) from
discontinued operations -- -- -- (1,182) (638)
Income before accounting
change 3,023 943 867 1,569 26
Net income 3,023 943 2,254 1,569 26
Per share income .62 .19 .46 .32 --
Total assets 72,838 48,071 43,798 43,846 46,864
Long-term debt 21,250 5,250 2,000 4,000 6,000
Shareholders' equity 39,104 36,137 35,203 33,025 32,675
Per share 8.00 7.39 7.19 6.73 6.35
Net working capital (370) 4,079 9,510 10,630 6,588
Net cash provided by
operating activities 11,558 5,696 6,738 9,092 8,744
<F1> The Company disposed of its contract drilling operations in August, 1992. Total revenues and income
(loss) before income taxes have been restated to eliminate the effects of contract drilling
operations.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY
---------
Net cash provided by operating activities before changes in
assets and liabilities increased 50% in 1995 to $9,870,251.
Higher crude oil sales was the principal reason for this sharp
rise in operating cash flow. In the fourth quarter of 1994 and
in the second quarter of 1995, the Company was successful in
consummating two significant property acquisitions, which were
largely responsible for the substantial increases in oil
production. 1995 operating cash flow was also favorably impacted
by higher crude oil prices, lower exploration costs (which
include dry holes and abandonments and lease rentals and seismic)
and general and administrative costs, which was partially offset
by higher lease operating and interest expense.
In March and December, 1995 the Company completed the
acquisition of working interests in 200 and 250 producing
properties, respectively, in the Permian Basin of West Texas.
These two acquisitions were financed with $6.75 million of the
Company's cash resources and $22.5 million in additional bank
financing. Thus, total bank debt at the end of 1995 was $26.1
million. A restated loan agreement was put into place on
December 20, 1995 in connection with the second property
acquisition. This new loan has a term of five years with
principal and interest to be paid quarterly and with a maturity
date of January 1, 2001. The loan agreement allows the Company
to choose between three interest rate options ranging from Bank
One prime rate to its certificate of deposit rate to a LIBOR
rate. The loan is secured by certain producing properties, but
the Company also has significant groups of properties remaining
unmortgaged should the opportunity arise to make additional
property acquisitions.
CAPITAL RESOURCES
-----------------
Net working capital at December 31, 1995 was a negative
$370,000 compared to $4,079,000 at December 31, 1994. Negative
working capital is attributable to the second property
acquisition, which closed on December 20, 1995, and the current
portion of long-term debt outstanding at that time. The
Company's cash position grew over $300,000 during 1995 while
significant amounts were spent on property acquisitions,
development drilling, and debt repayment. The year end cash
position was $6.1 million, and the Company believes it will
generate sufficient cash in 1996 to support its debt service,
fund its capital expenditure program, and pursue other
acquisition candidates.
The Company's recent drilling and acquisition activities
have increased its reserve base and its productive capacity and
ultimately its potential cash flow. Each outstanding share of
common stock is supported by 2.46 net equivalent barrels ("NEB")
of oil compared with 1.8 and 1.3 NEB respectively, for the prior
two years. Management of the Company intends to continue to
acquire and develop oil and gas properties in its areas of
activity as allowed by market conditions and financial ability.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994
----------------------------------------------------------
Net income for 1995 more than tripled 1994 levels, rising
from $943,216 to $3,023,107, representing sixty two cents per
share for 1995 versus nineteen cents per share in 1994.
This earnings increase was fueled by higher oil and gas
revenues, which rose 55% to $20,710,243. Higher revenues were
the result of a 72% increase in oil production and a 14% increase
in natural gas production. These sharp increases reflect the
late 1994 acquisition of waterflood properties in Carter and
Stephens Counties, Oklahoma, and the March 1995 acquisition of
Permian Basin properties in West Texas, as well as results from
1995 drilling activities.
In 1995, oil prices averaged $16.98 per barrel compared to
$15.47 during 1994, a $1.51 per barrel increase. Natural gas
prices experienced a 19% decline in 1995, from an average price
of $1.94 per thousand cubic feet of gas sold (MCF) in 1994 to
$1.57 per MCF in 1995. Natural gas prices reflect the country's
mild weather conditions and excess domestic supply.
Lease operating expenses rose $3,472,960 in 1995. On a net
equivalent barrel (NEB) basis, lifting costs rose seventy-eight
cents per barrel in 1995 to $5.98 per barrel, reflecting higher
costs associated with waterflood properties which were acquired
in fourth quarter 1994 and first quarter 1995.
Exploration costs were 48% lower in 1995, totaling
$609,279, versus $1,169,680 primarily due to reduced activity in
the three dimensional seismic program, which the Company had
utilized to establish exploratory drilling projects for the last
two years.
Depletion and amortization expense grew almost 46% in 1995
to $6,879,672. This significant increase was principally
attributable to the addition of properties in late 1994 and first
quarter 1995, which added approximately $20 million to the
Company's depletable costs.
The Company accounts for overhead charges billed to working
interest owners, including the Company, as a reduction to general
and administrative expenses. The Company's proportionate share
of the amounts billed are included in lease operating expenses.
Since the number of operated properties increased due to the
recent acquisitions, the amounts billed out in 1995 resulted in a
45% reduction in general and administrative expenses from
$1,676,228 to $925,822.
Other income (deductions) has been impacted by the
Company's property acquisitions. Interest expense grew $844,702
in 1995 due to bank borrowings to finance the properties
acquired. Additionally, a gain of $991,875 was generated for the
year, the largest portion being realized when a newly acquired
property was sold.
Income tax expense rose to $1,330,500 in 1995 from $252,482
in 1994, due primarily to improved earnings and additional state
taxes arising from an audit assessment.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO DECEMBER 31, 1993
CAPITAL RESOURCES AND LIQUIDITY
----------------------------------------------------------
At December 31, 1994 the Company had cash and short-term
investments of $5,836,389, working capital of $4,078,580,
property and equipment of $39,041,167 and total assets of
$48,071,094. Cash and short-term investments decreased $6.6
million, working capital decreased $5.4 million and property and
equipment increased $10.4 million between 1993 and 1994 as the
Company invested its monies in oil and gas properties.
Over the last five years, management's strategy has been to
purchase producing oil and gas properties, whose reserves can be
enhanced with additional development work and to selectively
participate in exploration activities. The funding for these
activities has been provided by operating cash flows and bank
financing. Net cash provided by operating activities for 1994
and 1993 was $5,696,279 and $6,737,745, while property and
equipment expenditures over this same period were $15,373,776 and
$6,065,590.
In December, 1994 the Company amended its term loan
agreement in connection with a $9.5 million property acquisition,
borrowing an additional $5 million. At year end 1994, the major
properties not subject to mortgage under the amended term loan
agreement and accordingly, available for future financing, were
the Levelland, Fullerton, and the newly acquired Sholem-Alechem
waterfloods.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 COMPARED TO DECEMBER 31, 1993
----------------------------------------------------------
Income before cumulative effect of an accounting change
rose $76,334, or 1 cent per share, during 1994 in spite of a
decline in revenues. Oil and gas revenues for the 1994 year were
$1,664,236 lower than a year ago due to a reduction in gas
volumes sold and a drop in product pricing. Gas volumes declined
12%, oil prices 4%, and gas pricing 10%. Offsetting these
revenue losses were cost reductions in every category except dry
holes and abandonments, which increased $417,194, as the three
dimensional seismic (3-D) program completed its shooting phase
and entered the drilling phase ($332,320 was spent in 1994 on
rentals and seismic compared with $1,309,158 in 1993). A total
of ten exploratory wells were drilled based upon 3-D, resulting
in three producers and seven dry holes compared with four dry
holes a year ago.
The other cost category which declined significantly in
1994 was depreciation and amortization which dropped $1,130,776
due to reduced gas volumes and positive reserve revisions on
certain properties. Thus, operating profit increased almost 10
fold over last year - $815,420 in 1994 versus $86,338 in 1993.
The other income (deductions) category was unfavorably
impacted in the amount of $985,790. In 1993, the Company
realized a $1.0 million dollar gain from the sale of gas
processing rights which was non-recurring in 1994.
Current period income tax expense was $333,042 lower than a
year ago, primarily due to lower taxable income.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is included on pages 19
through 36 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
NONE
PART III
The information required by Part III (Items 10 through 13)
is set forth in the Company's Proxy Statement for the annual
meeting of stockholders to be held on May 21, 1996, and is
incorporated herein by reference. Information with respect to
the Company's executive officers as of March 18, 1996, is set
forth commencing on pages 9 and 10 hereof under the caption
"Executive Officers of the Registrant."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8K
FINANCIAL STATEMENTS AND SCHEDULES
See Index to Consolidated Financial Statements and
Schedules on page 18 of this Report.
REPORTS ON FORM 8-K
On January 4, 1996, the Company filed a Form 8-K with the
Securities and Exchange Commission, as amended by Amendment No. 1
on Form 8-KA dated February 28, 1996 to report the acquisition of
producing oil and gas properties. Pro forma financial
information was included in the report, as amended.
EXHIBITS
3.1(a) Certificate of Incorporation, as amended, filed as
Exhibit 3.1 to the Company's Annual Report on Form
10-K for its fiscal year ended December 31, 1980 (the
"1980 Form 10-K"), and incorporated herein by
reference.
(b) Certificate of Amendment of Certificate of
Incorporation dated May 19, 1981, filed as Exhibit
3.1(b) to the Company's Annual Report on Form 10-K
for its fiscal year ended December 31, 1981 (the
"1981 form 10-K"), and incorporated herein by
reference.
(c) Certificate of Amendment of Certificate of
Incorporation dated May 22, 1987, filed as Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1987, and incorporated
herein by reference.
(d) Certificate of Amendment of Certificate of
Incorporation dated June 3, 1993, filed as Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1993, and incorporated
herein by reference.
3.2(a) By-Laws, as amended, filed as Exhibit 3.2(b) to the
1981 Form 10-K and incorporated herein by reference.
(b) Amendment to the By-Laws, filed as Exhibit 3.2(b) to
the 1981 Form 10-K and incorporated herein by
reference.
(c) Amendment to the By-Laws, filed as Exhibit 3.2(c) to
the Company's Annual Report on Form 10-K for its
fiscal year ended December 31, 1984, and incorporated
herein by reference.
(d) Amendment to the By-Laws, filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1987, and incorporated herein
by reference.
(e) Amendment to the By-Laws, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for its fiscal
year ended December 31, 1993 and incorporated herein
by reference.
4.1 Credit agreement ($10,000,000 Term Facility) dated
October 1, 1990 between Maynard Oil Company and First
City, Texas - Dallas, filed as Exhibit 4.2 to the
Company's Annual Report on Form 10-K for its fiscal
year ended December 31, 1990, and incorporated herein
by reference.
4.2 First Amendment to Loan Agreement dated November 19,
1991 between Maynard Oil Company and First City,
Texas - Dallas, filed as Exhibit 4.2 to the Company's
Annual Report on Form 10-K for its fiscal year ended
December 31, 1992, and incorporated herein by
reference.
4.3 Second Amendment to Loan Agreement, dated February 1,
1993 between Maynard Oil Company and Bank One, Texas,
N.A. filed as Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30,
1993, and incorporated herein by reference.
4.4 Third Amendment to Loan Agreement, dated December 22,
1994 between Maynard Oil Company and Bank One, Texas,
N.A., filed as Exhibit 4.4 to the Company's Annual
Report on Form 10-K for its fiscal year ended
December 31, 1994, and incorporated herein by
reference.
4.5 Fourth Amendment to Loan Agreement, dated March 29,
1995 between Maynard Oil Company and Bank One, Texas,
N.A., filed as Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the period ended March 31,
1995, and incorporated herein by reference.
*4.6 Restated Loan Agreement, dated December 20, 1995
between Maynard Oil Company and Bank One, Texas,
N.A., filed herewith.
*10.1 1989 Stock Participation Plan, filed herewith.
*11.1 Computation of per share earnings, filed herewith.
*21.1 List of subsidiaries of the Company as of
December 31, 1995, filed herewith.
*27 Financial Data Schedules, filed herewith.
___________________________
* Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MAYNARD OIL COMPANY
By \s\ James G. Maynard
---------------------------
James G. Maynard
Chairman of the Board
Date: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons in the capacities and on the date indicated in multiple
counterparts with the same force and effect as if each person
executing a separate counterpart has joined in execution of the
same counterpart.
/s/ James G. Maynard Chairman of the Board, March 29, 1996
------------------------ Chief Executive
James G. Maynard Officer & Treasurer
/s/ Glenn R. Moore President and Chief March 29, 1996
----------------------- Operating Officer
Glenn R. Moore
/s/ Kenneth W. Hatcher Vice President of Finance March 29, 1996
----------------------- (Principal Financial
Kenneth W. Hatcher and Accounting Officer)
/s/ Robert B. McDermott Director March 29, 1996
-----------------------
Robert B. McDermott
/s/ Ralph E. Graham Director March 29, 1996
----------------------
Ralph E. Graham<PAGE>
MAYNARD OIL COMPANY AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedules
Page
----
Financial Statements:
Report of Independent Accountants 19
Consolidated Balance Sheets - December 31, 1995 and 1994 20
Consolidated Statements of Income - Three years ended
December 31, 1995 21
Consolidated Statements of Shareholders' Equity - Three
years ended December 31, 1995 22
Consolidated Statements of Cash Flows - Three years
ended December 31, 1995 23
Notes to Consolidated Financial Statements 24
Financial Statement Schedules for the Three years
ended December 31, 1995
II - Valuation and Qualifying Accounts 36
All other schedules are omitted as the required information is
inapplicable or the information is presented in the Consolidated
Financial Statements or Notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of
Maynard Oil Company
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects, the
financial position of Maynard Oil Company and its subsidiaries at
December 31, 1995 and 1994, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for the opinion expressed above.
As discussed in Note 1, in 1993 the Company changed its method of
accounting for income taxes.
Price Waterhouse LLP
March 25, 1996
Dallas, Texas
<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
December 31,
-----------------------
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,138,903 $ 5,836,389
Accounts receivable, trade 3,297,933 2,411,451
Other current assets 465,426 782,087
----------- ----------
Total current assets 9,902,262 9,029,927
----------- ----------
Property and equipment, at cost:
Oil and gas properties, successful
efforts method 111,473,388 81,863,254
Other property and equipment 507,953 670,110
----------- ----------
111,981,341 82,533,364
Less accumulated depreciation and
amortization (49,045,024) (43,492,197)
----------- ----------
Net property and equipment 62,936,317 39,041,167
----------- ----------
$72,838,579 $48,071,094
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of
long-term debt $ 4,812,500 $1,750,000
Accounts payable 4,126,013 2,611,209
Accrued expenses 920,653 590,138
Income taxes payable 412,695 --
----------- ----------
Total current liabilities 10,271,861 4,951,347
----------- ----------
Deferred income taxes 2,212,510 1,732,510
Long-term debt 21,250,000 5,250,000
Shareholders' equity:
Preferred stock of $.50 par value.
Authorized 1,000,000 shares; none
issued -- --
Common stock of $.10 par value.
Authorized 20,000,000 shares;
4,889,970 and 4,891,379 shares
issued and outstanding 488,997 489,138
Additional paid-in capital 18,831,138 18,725,538
Retained earnings 19,784,073 16,922,561
----------- ----------
Total shareholders' equity 39,104,208 36,137,237
----------- ----------
Contingencies and commitments (note 9)
$72,838,579 $48,071,094
=========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
<CAPTION>
Years ended December 31,
--------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Oil and gas sales and royalties $20,710,243 $13,358,560 $15,022,796
Costs and expenses:
Operating expenses 8,443,466 4,970,506 5,430,105
Dry holes and abandonments 573,737 837,360 420,166
Lease rentals and seismic 35,542 332,320 1,309,158
General and administrative 925,822 1,676,228 1,919,527
Depreciation and amortization 6,879,672 4,726,726 5,857,502
---------- ---------- ----------
16,858,239 12,543,140 14,936,458
---------- ---------- ----------
Operating profit 3,852,004 815,420 86,338
---------- ---------- ----------
Other income (deductions):
Interest income 501,046 460,527 384,283
Interest expense (991,318) (146,616) (223,134)
Gain on disposition of assets 991,875 66,367 1,204,919
---------- ---------- ----------
501,603 380,278 1,366,068
---------- ---------- ----------
Income before income taxes 4,353,607 1,195,698 1,452,406
Income tax expense 1,330,500 252,482 585,524
---------- ---------- ----------
Income before cumulative effect of
accounting change 3,023,107 943,216 866,882
Cumulative effect of change in method
of accounting for income taxes -- -- 1,386,844
----------- ---------- ----------
Net income $ 3,023,107 $ 943,216 $2,253,726
=========== ========== ==========
Weighted average number of common
shares outstanding 4,890,708 4,891,592 4,894,829
=========== ========== ==========
Income per common share:
Income before cumulative effect
of accounting change $ .62 $ .19 $ .18
Cumulative effect of change in method
of accounting for income taxes -- -- .28
----- ----- -----
$ .62 $ .19 $ .46
===== ===== =====
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
<CAPTION>
Common Stock Additional
Paid-in Retained
Shares Amount Capital Earnings Total
--------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 4,904,192 $490,419 $18,672,753 $13,861,355 $33,024,527
Net income -- -- -- 2,253,726 2,253,726
Purchase and retirement
of common stock (12,448) (1,245) -- (73,271) (74,516)
--------- -------- ----------- ----------- -----------
Balance at December 31, 1993 4,891,744 489,174 18,672,753 16,041,810 35,203,737
Net income -- -- -- 943,216 943,216
Exercise of common stock
options 11,500 1,150 52,785 -- 53,935
Purchase and retirement of
common stock (11,865) (1,186) -- (62,465) (63,651)
--------- -------- ----------- ----------- -----------
Balance at December 31, 1994 4,891,379 489,138 18,725,538 16,922,561 36,137,237
Net income -- -- -- 3,023,107 3,023,107
Exercise of common stock
options 24,000 2,400 105,600 -- 108,000
Purchase and retirement of
of common stock (25,409) (2,541) -- (161,595) (164,136)
--------- -------- ----------- ----------- -----------
Balance at December 31, 1995 4,889,970 $488,997 $18,831,138 $19,784,073 $39,104,208
========= ======== =========== =========== ===========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<CAPTION>
Years ended December 31,
1995 1994 1993
---------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $3,023,107 $ 943,216 $2,253,726
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 6,879,672 4,726,726 5,857,502
Deferred income taxes 480,000 867,510 (1,360,844)
Dry holes and abandonments 573,737 837,360 420,166
Current year costs of dry holes and
abandonments (94,390) (725,836) (304,935)
Gain on disposition of assets (991,875) (66,367) (1,204,919)
(Increase) decrease in current assets:
Accounts receivable (886,482) (316,855) 646,469
Other current assets 316,661 (41,974) (195,747)
Increase (decrease) in current liabilities:
Accounts payable 1,514,804 64,471 681,624
Accrued expenses 330,515 (59,587) 13,318
Income taxes payable 412,695 (532,385) (68,615)
----------- ----------- -----------
Net cash provided by operating
activities 11,558,444 5,696,279 6,737,745
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from disposition of assets 3,426,499 119,405 1,359,529
Additions to property and equipment (33,688,793) (15,373,776) (6,065,590)
----------- ----------- -----------
Net cash used by investing
activities (30,262,294) (15,254,371) (4,706,061)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of
long-term debt 22,500,000 5,000,000 --
Principal payments on
long-term debt (3,437,500) (2,000,000) (1,493,170)
Purchase of common stock (164,136) (63,651) (74,516)
Exercise of stock options 108,000 53,935 --
----------- ----------- -----------
Net cash provided (used) by
financing activities 19,006,364 2,990,284 (1,567,686)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 302,514 (6,567,808) 463,998
Cash and cash equivalents at beginning
of year 5,836,389 12,404,197 11,940,199
----------- ----------- -----------
Cash and cash equivalents at end of year $ 6,138,903 $ 5,836,389 $12,404,197
=========== =========== ===========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
------------------------------------------
Business Activity
-----------------
The Company is engaged in the production and sale of and the
acquisition, exploration and development of crude oil and
natural gas in the Continental United States.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of
Maynard Oil Company (Company) and its subsidiaries, all of which
are wholly-owned. All significant intercompany balances and
transactions have been eliminated in consolidation.
Property and Equipment
----------------------
The Company follows the "successful efforts" method of
accounting for its costs of acquisition, exploration and
development of oil and gas properties. Intangible drilling and
development costs related to development wells and successful
exploratory wells are capitalized, whereas the costs of
exploratory wells which do not find proved reserves are
expensed. Costs of acquiring unproved leases are evaluated for
impairment until such time as the leases are proved or
abandoned. All geological and geophysical costs not reimbursed
are expensed as incurred.
Depreciation and amortization of producing properties is
computed using the unit-of-production method based upon
estimated proved recoverable reserves. Depreciation of other
property and equipment is calculated by the straight-line method
based upon estimated useful lives ranging from two to ten years.
Maintenance and repairs are charged to expense as incurred.
Renewals and betterments are capitalized. When assets are sold,
retired or otherwise disposed of, the applicable costs and
accumulated depreciation and amortization are removed from the
accounts, and the resulting gain or loss is recognized.
Overhead Reimbursement Fees
---------------------------
Overhead charges billed to working interest owners including the
Company of $1,892,370, $805,982, and $681,389 for the three
years ended December 31, 1995, respectively, have been
classified as a reduction of general and administrative expenses
in the accompanying Consolidated Statements of Income. The
Company's working interest portion of the amounts billed are
included in lease operating expenses.
Deferred Income Taxes
---------------------
Effective January 1, 1993 the Company adopted Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting
for Income Taxes", which changed the Company's method of
accounting for income taxes from the deferred method to an asset
and liability approach. SFAS 109 requires the recognition of
deferred tax liabilities and assets (net of any required
valuation allowance) for the expected future tax consequences,
if any, of temporary differences between the financial statement
balance and the tax basis of assets and liabilities. The
cumulative effect of the change in accounting for income taxes
was an increase in net income of $1,386,844. No valuation
allowance was provided in determining the cumulative effect
adjustment. This adjustment was primarily attributable to a
reduction in the deferred tax liability, which was originally
recorded when the tax rate was 46%.
Income per Common Share
-----------------------
Income per common share is computed using the weighted average
number of common shares outstanding during each year. The
difference between primary and fully diluted earnings per share,
which assumes the exercise of stock options in 1994 and 1993,
was not significant. During 1995, all outstanding stock options
were exercised, and consequently, primary and fully diluted
earnings per share are the same for the current year.
Financial Instruments
---------------------
The carrying amounts of cash and cash equivalents, accounts
receivable and accounts payable approximate fair value because
of the short maturity of these instruments. The carrying amount
of long-term debt, including the current portion, approximates
fair value because the interest rate on this instrument changes
with market interest rates.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and
cash equivalents and accounts receivable. The Company places
its cash and cash equivalents with high credit quality
institutions. With respect to accounts receivable, these
financial instruments primarily pertain to oil and gas sales and
joint interest billings. These accounts receivable are due from
small to mid-size companies engaged principally in oil and gas
activities. The Company performs ongoing credit evaluations of
its customers' financial condition and, generally, requires no
collateral from its customers. Payment terms are on a short-
term basis and in accordance with industry standards.
The Use of Estimates in Preparing Financial Statements
------------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues, expenses, disclosure of gain
and loss contingencies at the date of the financial statements
and reported amounts of revenues and expenses during the
reporting period. Since estimates are made based on all
information available at the time, it is reasonably possible
that, in the near term, a change in an estimate may occur or
that actual amounts may differ from estimated amounts.
Future Reporting Requirements
-----------------------------
The Company has elected to postpone adoption of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of until fiscal 1996. The
effect of SFAS 121, which requires that long-lived assets be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable, will not have a material impact on the
Company's financial statements.
(2) Acquisitions and Dispositions (Reserve information is unaudited)
----------------------------------------------------------------
During 1995, the Company consummated two separate producing
property acquisitions for a gross purchase price of $29,250,000.
On March 29, 1995, the Company closed its acquisition of working
interests in 200 producing wells in the Permian Basin of West
Texas. Estimated proved reserves associated with this
transaction approximated .99 million barrels of oil and 6.5
billion cubic feet of gas (BCF). Total consideration paid was
$10,500,000.
On December 20, 1995, the Company closed the acquisition of
working interests in 250 producing wells located in Garza County,
Texas. Total consideration paid was $18,750,000, $13,000,000 of
which was borrowed under a new term loan arrangement with Bank
One, Texas. Proved reserves are estimated to be 2.46 million
barrels of oil and .3 BCF of gas.
In December, 1994, the Company purchased working interests in one
gas well and seven waterflood units in the Sholem Alechem area of
Carter and Stephens Counties, Oklahoma for a gross purchase price
of $9.5 million. Proved reserves associated with this purchase
were 1.6 million barrels of oil and .8 BCF of gas.
The above acquisitions were accounted for as purchases, and their
results of operations are included in the Consolidated Statements
of Income from the closing dates, while their results of
operations from the effective date through the closing date were
recorded as purchase price adjustments.
The following table presents unaudited pro forma operating
results as if the acquisitions had occurred on January 1, 1994.
Years ended December 31,
-----------------------
1995 1994
---- ----
Amounts in thousands, except per
share amounts
Sales $26,062 $26,857
Income before cumulative effect
of accounting change 3,568 1,921
Income per common share:
Income before accounting change .73 .39
In September 1995, one prospect, which had been acquired in
March, was sold after the Company received an unsolicited
purchase offer. The economics were attractive, and the Company
sold this prospect for $2,985,935 in cash proceeds realizing a
gain of $817,794.
(3) Cash Flow Data
--------------
Cash in excess of daily requirements is invested in marketable
securities, consisting of repurchase agreements, certificates of
deposit, and commercial paper, with maturities of three months or
less. At December 31, 1995 and 1994, such investments totaled
$6,300,000 and $6,150,000, respectively, and are considered to be
cash equivalents, which are carried at the lower of cost or
market.
Supplemental cash flow information for the three years ended
December 31, 1995 is summarized as follows:
1995 1994 1993
---- ---- ----
Cash paid (received):
Interest expense $ 853,247 $ 175,319 $ 200,539
======== ======== ========
Income taxes paid $ 121,674 $ 28,016 $ 643,662
======== ======== ========
Income taxes refunded $ -- $(369,528) $ --
======== ======== ========
(4) Long-term Debt
--------------
Long-term debt at December 31, 1995 and 1994 is summarized as
follows:
1995 1994
---- ----
Term note due in 20 equal quarterly
installments of $1,250,000 commencing
April 1, 1996 plus one payment of
$1,062,500 made January 1, 1996.
Interest paid quarterly at varying
rates. Secured by certain oil and
gas properties with a net book value
of $36,843,000. $26,062,500 --
Amended term note due in 16 equal
quarterly installments commencing
January 1,1995. Interest paid
quarterly at varying rates.
Secured by certain oil and gas
properties. -- $7,000,000
Less current installments 4,812,500 1,750,000
----------- ----------
Long-term debt $21,250,000 $5,250,000
=========== ==========
Effective December 21, 1995, the Company executed a new loan
agreement with Bank One, Texas, increasing its outstanding loan
from $13,062,500 to $26,062,500 in connection with the
acquisition of producing properties discussed in Note 2. This
new term loan agreement replaced a March, 1995 bank loan
amendment, which had increased the outstanding loan amount from
$7,000,000 to $16,062,500. The Company made scheduled loan
repayments of $437,500 in January, 1995 and April, 1995 and
$781,250 in July and October of 1995. Additionally, the Company
prepaid $1,000,000 on September 1, 1995 after the sale of certain
properties previously acquired.
The term note permits the Company to choose between three
interest rate options and to specify what portion of the loan is
covered by a specific interest rate option and the applicable
funding period to which the interest rate option is to apply.
The interest rate options are as follows:
(1) Bank's prime lending rate
(2) Bank's certificate of deposit rate
(3) London interbank eurodollar rate (Eurodollar)
At December 31, 1995, interest on the bank term loan was at a
rate of approximately 7.21%.
The term note agreement contains restrictions related to working
capital, net worth, and cash flow. Additionally, the debt
agreement places certain limitations on the incurrence of
additional debt and prohibits the payment of dividends.
(5) Employee Incentive Plans
------------------------
In August 1989, an employee incentive plan was adopted, whereby
stock participation units might be granted to officers and key
employees. Such stock participation units will entitle a
participant to a cash payment following termination of employment
in an amount equal to the excess, if any, of the fair market
value of one share of the Company's common stock over a share
price specified on the date of grant, multiplied by the number of
vested units. The units vest over a five year period with 25%
vesting after two years and the remainder in three equal annual
installments. For the year ended December 31, 1989, 73,000 units
were awarded to certain employees at a price of $4.50 per share
of which 49,500 units remain outstanding at December 31, 1995,
all of which are 100% vested. During August 1993, 52,000
additional units were awarded at $5.625 per share of which 13,000
units are vested. Earnings are charged over the life of the
units for increases in stock prices (if any) over $4.50 per share
and $5.625 per share. During the periods ended December 31, 1995
and 1993, operations were charged $76,183 and $1,484
respectively, in regard to the stock participation units granted
in 1989. During 1995, operations were also charged $15,676 in
regard to the units awarded in 1993. There were no such charges
in 1994.
In March 1982, an employee incentive plan was adopted whereby
stock options and stock appreciation rights might be granted to
officers and key employees. A total of 281,517 shares were
initially reserved for issuance. This plan terminated in March
1992 and no further grants may be made under this plan. The
options became exercisable cumulatively in five equal
installments, beginning on the first anniversary of the date of
grant. The option price for shares granted pursuant to the plan
was not less than the fair market value of the shares at the date
of grant.
A summary of stock option activity for the 1982 plan for the past
three years is as follows:
Number
of Option Price
Shares per Share
------- -------------
Outstanding at December 31, 1992 45,600 $4.50 to $6.50
Granted -0- --
Exercised -0- --
Cancelled (5,000) $4.75
Outstanding at December 31, 1993 40,600 $4.50 to $6.50
Granted -0- --
Exercised (11,500) $4.69
Cancelled (5,100) $4.50 to $6.50
Outstanding at December 31, 1994 24,000 $4.50
Exercised (24,000) $4.50
Outstanding at December 31, 1995 -0-
During September 1995, options for 24,000 shares were exercised.
Common stock was credited for $2,400 and additional paid-in
capital was credited for $105,600. The Company simultaneously
repurchased and cancelled 23,500 of the shares exercised for
$6.50 per share. Common stock was debited for $2,350 and
retained earnings charged $150,400 in regard to the repurchased
shares.
(6) Income Taxes
------------
Income tax expense (benefit) consists of the following:
Years ended December 31,
--------------------------------------
1995 1994 1993
---- ---- ----
Federal
Current $ 620,500 $(615,028) $ 461,840
Deferred 480,000 867,510 26,000
State 230,000 -- 97,684
---------- --------- ---------
$1,330,500 $ 252,482 $ 585,524
========== ========= =========
Income tax expense for the three years ended December 31, 1995
differs from the amount computed by applying the applicable U.S.
corporate income tax rate of 34% to income before income taxes.
The reasons for this difference are as follows:
Year ended December 31,
---------------------------------
1995 1994 1993
---- ---- ----
Income tax expense at
U.S. statutory rate $1,480,226 $ 406,537 $ 493,818
State income taxes 230,000 -- 97,684
Allowable depletion in
excess of cost depletion (281,526) -- (188,700)
Items not related to current
year earnings (89,198) (294,528) 146,000
Net operating loss
not utilized -- 88,000 --
Other items (9,002) 52,473 36,722
---------- --------- ---------
Income tax expense $1,330,500 $ 252,482 $ 585,524
========== ========= =========
The components of the net deferred tax liability were as follows:
December 31,
------------------------------
1995 1994
---- ----
Depreciable assets $ 61,510 $ 29,210
Depletable assets 14,400 (6,100)
Intangible drilling
and development
costs 2,542,600 2,115,400
Tax credit
carryforwards (406,000) (406,000)
---------- ----------
Net deferred tax
liability $2,212,510 $1,732,510
In November 1995 the Oklahoma State Tax Commission completed an
examination of the 1990 through 1993 state income tax returns for
Maynard Oil Company. Taxes on the adjustments amounted to
$149,690. The Company had followed a three factor apportionment
formula (sales, property, and payroll) as allowed and utilized by
the majority of taxpayers in calculating their Oklahoma tax
liability. However, the Oklahoma Tax Commission requires a
separate accounting theory to calculate the state tax liability.
Management believes it has made adequate provision for all income
taxes and interest arising as a result of this examination.
As of December 31, 1995, the Company has alternative minimum tax
credit carryforwards of approximately $406,000 available for
Federal income tax purposes. No valuation allowance has been
provided for this deferred asset.
(7) Employee Benefit Plans
----------------------
Effective January 1, 1985 the Company adopted a noncontributory
defined contribution retirement plan for all full-time employees
age 21 or older who have completed one year of service. The
plan provides for a minimum annual contribution by the Company
equal to 3% of an employee's base salary plus overtime
compensation. At its discretion the Company may also make
supplemental contributions to the plan. Under this plan,
amounts equal to retirement plan expense are funded annually,
which amounted to $40,777, $28,298, and $23,012, respectively,
for the years ended December 31, 1995, 1994, and 1993. The
contributions for the same three year period have been reduced
by $1,818, $10,407, and $20,104, respectively, for forfeitures
attributable to employees terminated in prior years.
Effective February 1, 1991, the Company adopted a profit sharing
plan pursuant to Section 401 of the Internal Revenue Code,
whereby participants may contribute a percentage of
compensation. The Plan provides for a matching contribution by
the Company equal to one-half of the employee's percentage
contribution up to the first 10% of compensation for 1995, 1994,
and 1993. During this same three year period, the Company's
matching portion amounted to $59,579, $52,710, and 57,191,
respectively.
(8) Major Customers
---------------
During the years ended December 31, 1995, and 1993, oil and gas
sales to three customers, amounting to approximately
$4,377,000, $3,746,000, and $2,946,000, and $4,356,000,
$1,857,000, and $1,749,000, respectively, each accounted for
more than 10% of total consolidated revenues. During the year
ended December 31, 1994, oil and gas sales to two customers,
amounting to approximately $5,166,000 and $1,500,000, each
accounted for more than 10% of total consolidated revenues.
(9) Contingencies and Commitments
-----------------------------
The Company is a defendant in certain non-environmental
litigation arising from operations in the normal course of
business. While it is not feasible to determine the outcome of
these actions, it is the Company's opinion that the ultimate
outcome of the litigation will have no material adverse effect
in the financial position or results of operations of the
Company.
The Company leases office space and certain equipment under
various operating leases which expire over the next five years.
All leases require the payment of taxes and insurance, and the
office lease requires the Company to pay its pro rata share of
increases in maintenance expense above that prevailing in base
years. Management expects that in the normal course of
business, leases will be renewed or replaced by other leases.
The Company extended its office space lease, which was scheduled
to terminate April 30, 1996, for an additional four years, such
that the expiration date is now April 30, 2000. Rent expense
for the three years ended December 31, 1995 was $298,371,
$266,967, and $256,984, respectively.
Minimum payments for operating leases having initial or
noncancellable terms in excess of one year are as follows:
1996 $ 245,186
1997 219,214
1998 207,063
1999 197,798
2000 58,531
---------
Total minimum payments $ 927,792
=========
(10) Quarterly Financial Data (Unaudited)
------------------------------------
Summarized quarterly financial data for the years ended
December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
Revenues $4,263,731 $5,884,593 $5,120,668 $5,441,251
Operating Profit 685,165 1,667,493 860,547 638,799
Net Income 583,589 1,113,360 1,214,186 111,972
Net Income per
common share .12 .23 .25 .02
Year Ended December 31, 1994
Revenues $3,200,210 $3,306,282 $3,197,136 $3,654,932
Operating Profit 9,710 (550,545) 257,628 1,098,627
Net Income (loss) 46,725 (347,056) 544,352 699,195
Net Income per
common share .01 (.07) .11 .14
</TABLE>
During the fourth quarter of 1995, the Company recorded an
impairment of $491,051 to unproved leasehold costs relating to
the Company's three-dimensional seismic program. The effect of
this impairment is included in Dry holes and abandonments on the
Consolidated Statements of Income.
(11) Supplemental Oil and Gas Disclosures (Unaudited)
------------------------------------------------
Capitalized Costs
-----------------
A summary of the Company's aggregate capitalized property and
equipment costs relating to oil and gas exploration and
development activities follows:
December 31,
1995 1994
------------ -----------
Undeveloped leaseholds and
royalties $ 124,924 $ 771,614
Producing properties 111,348,464 81,091,640
------------ -----------
111,473,388 81,863,254
Accumulated depreciation and
amortization 48,807,308 43,002,143
------------ -----------
Net capitalized costs $ 62,666,080 $38,861,111
============ ===========
Costs Incurred
--------------
A summary of costs incurred in oil and gas acquisition,
exploration and development activities follows:
Years ended December 31,
------------------------
1995 1994 1993
---- ---- ----
Acquisition of properties
Undeveloped $ 59,010 $ 293,472 $ 644,666
Proved 29,234,607 9,679,619 3,544,615
Exploration costs 413,632 1,473,571 1,609,065
Development costs 3,949,882 4,972,784 1,736,360
----------- ----------- -----------
$33,657,131 $16,419,446 $7,534,706
=========== =========== ==========
Results of Operations
---------------------
The results of operations from oil and gas producing
activities are as follows:
Years ended December 31,
------------------------------------
1995 1994 1993
---- ---- ----
Sales $20,710,243 $13,358,560 $15,022,796
Production costs (a) (8,443,466) (4,970,506) (5,430,105)
Exploration expenses (661,319) (2,093,756) (2,777,119)
Depreciation and
amortization (6,801,115) (4,671,569) (5,790,825)
---------- ---------- ----------
4,804,343 1,622,729 1,024,747
Income tax expense (1,535,000) (408,000) (382,000)
---------- ---------- ----------
Results of operations
from oil and gas
producing activities $3,269,343 $1,214,729 $ 642,747
========== ========== =========
(a) Includes lifting costs, severance taxes and ad valorem
taxes.
Oil and Gas Reserve Quantities
------------------------------
The following unaudited tables represent the Company's estimates of
its proved oil and gas reserves. The Company emphasizes that reserve
estimates are inherently imprecise and that estimates of new
discoveries are more imprecise than those of producing oil and gas
properties. Accordingly, the estimates are expected to change as
future information becomes available. The estimates were evaluated by
the Company's staff of petroleum engineers and audited by independent
petroleum engineers. It is their opinions that the reserve quantity
and present value information in the following tables complies with
the applicable rules and regulations of the SEC. All of the Company's
reserves are located within the United States.
Proved Developed and Oil Gas
Undeveloped Reserves (Barrels) (MCF)
-------------------- --------- ----------
Total as of December 31, 1992 3,507,995 16,933,100
Revisions of previous estimates (253,871) 1,354,522
Purchases of reserves 1,094,331 348,432
Extensions and discoveries 238,240 8,504
Production (557,704) (2,717,162)
Sales of reserves in place (14,966) (68,756)
--------- ----------
Total as of December 31, 1993 4,014,025 15,858,640
Revisions of previous estimates 310,471 290,761
Purchases of reserves 1,618,491 806,119
Extensions and discoveries 778,924 395,184
Production (558,295) (2,390,298)
Sales of reserves in place (10,554) (8,946)
--------- ----------
Total as of December 31, 1994 6,153,062 14,951,460
Revisions of previous estimates (113,124) (291,417)
Purchases of reserves 3,399,040 7,951,973
Extensions and discoveries 455,693 969,038
Production (957,873) (2,720,441)
Sales of reserves in place (64,283) (1,996,593)
--------- ----------
Total as of December 31, 1995 8,872,515 18,864,020
========= ==========
Proved Developed Reserves
-------------------------
December 31, 1993 2,907,466 15,004,678
December 31, 1994 5,485,909 14,355,633
December 31, 1995 8,712,835 18,214,860
Standardized Measure
--------------------
The standardized measure of discounted future cash flows from
proved oil and gas reserves determined in accordance with rules
prescribed by the Financial Accounting Standards Board is summarized
as follows:
Years ended December 31,
-----------------------------
1995 1994 1993
(000's) (000's) (000's)
------- ------- -------
Future cash inflows $192,794 $123,865 $80,832
Future production costs (92,873) (61,969) (35,984)
Future development costs (1,146) (2,166) (4,864)
------- ------- -------
98,775 59,730 39,984
Future income tax expenses (14,464) (8,590) (4,413)
------- ------- -------
Future net cash flows 84,311 51,140 35,571
10% annual discount for estimated
timing of cash flows (27,710) (16,929) (12,635)
------- ------- -------
Standardized measure of discounted
future net cash flows $56,601 $34,211 $22,936
======= ======= =======
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows.
<TABLE>
<CAPTION> Years ended December 31,
-----------------------------------------------
1995 1994 1993
(000's) (000's) (000's)
------- ------- -------
<S> <C> <C> <C>
Standardized measure - beginning of year $34,211 $22,936 $27,875
Sales of oil and gas produced,
net of production costs (12,267) (8,388) (9,593)
Net changes in prices and production costs 5,396 3,065 (3,969)
Extensions, discoveries, and improved
recovery, less related costs 3,514 5,317 560
Changes in future development costs 135 (57) (594)
Development costs incurred 850 2,809 1,166
Revisions of previous quantity estimates (867) 1,694 (134)
Accretion of discount 3,996 2,578 3,305
Purchase of proved reserves 27,801 6,517 1,294
Sale of proved reserves (2,065) 7 (109)
Net change in income taxes (3,964) (2,901) 2,324
Other (139) 634 811
------- ------- ------
Standardized measure - end of year $56,601 $34,211 $22,936
======= ======= =======
</TABLE>
Schedule II
MAYNARD OIL COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Three Years Ended December 31, 1995
Charged to
Beginning Cost and Ending
Description Balance Expenses Deductions Balance
----------- ------- -------- ---------- -------
Allowance for Doubtful Accounts - (a)
-------------------------------------
December 31, 1993 $ 43,000 -- -- $43,000
======== ======= ======= =======
December 31, 1994 $ 43,000 -- -- $43,000
======== ======= ======= =======
December 31, 1995 $ 43,000 -- -- $43,000
======== ======= ======= =======
(a) Valuation account deducted in the balance sheet from trade
accounts receivable.<PAGE>
Exhibit 4.6
RESTATED LOAN AGREEMENT
BETWEEN
MAYNARD OIL COMPANY,
AS BORROWER
AND
BANK ONE, TEXAS, N.A.,
AS BANK
DECEMBER 20, 1995
TABLE OF CONTENTS
Page No.
1. Certain Defined Terms 2
2. Term Commitment of the Bank. 13
3. Note Evidencing Loan. . . . . . . . . . . . . . . . . . . . 13
(a) Form of Note . . . . . . . . . . . . . . . . . . . . . 13
(b) Interest Rate . . . . . . . . . . . . . . . . . . . . . 13
(c) Payment of Interest . . . . . . . . . . . . . . . . . . 13
(d) Payment of Principal . . . . . . . . . . . . . . . . . 13
4. Interest Rates. . . . . . . . . . . . . . . . . . . . . . . 14
(a) Options . . . . . . . . . . . . . . . . . . . . . . . . 14
(b) Interest Rate Determination . . . . . . . . . . . . . . 15
(c) Conversion Option . . . . . . . . . . . . . . . . . . . 15
(d) Continuation Option . . . . . . . . . . . . . . . . . . 16
(e) Recoupment . . . . . . . . . . . . . . . . . . . . . . 16
5. Special Provisions Relating to Fixed Rate Loans . . . . . . 16
(a) Unavailability of Funds or Inadequacy of Pricing . . . 16
(b) Reserve Requirements . . . . . . . . . . . . . . . . . 17
(c) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 17
(d) Change in Laws . . . . . . . . . . . . . . . . . . . . 18
(e) Option to Fund . . . . . . . . . . . . . . . . . . . . 18
(f) Indemnity . . . . . . . . . . . . . . . . . . . . . . . 19
(g) Payments Not at End of Interest Period . . . . . . . . 19
(h) Maximum Number of Tranches . . . . . . . . . . . . . . 19
6. COLLATERAL SECURITIES . . . . . . . . . . . . . . . . . 19
7. Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . 20
(a) Initial Borrowing Base . . . . . . . . . . . . . . . . 20
(b) Subsequent Determinations of Borrowing Base . . . . . . 20
8. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . 21<PAGE>
(a) Voluntary Prepayments . . . . . . . . . . . . . . . . . 21
(b) Mandatory Prepayment For Borrowing Base Deficiency . . 21
9. Representations and Warranties . . . . . . . . . . . . . . . 21
(a) Creation and Existence. . . . . . . . . . . . . . . . . 22
(b) Power and Authority. . . . . . . . . . . . . . . . . . 22
(c) Binding Obligations . . . . . . . . . . . . . . . . . . 22
(d) No Legal Bar or Resultant Lien . . . . . . . . . . . . 22
(e) No Consent . . . . . . . . . . . . . . . . . . . . . . 22
(f) Financial Condition . . . . . . . . . . . . . . . . . . 22
(g) Liabilities . . . . . . . . . . . . . . . . . . . . . . 23
(h) Litigation . . . . . . . . . . . . . . . . . . . . . . 23
(i) Taxes; Governmental Charges . . . . . . . . . . . . . . 23
(j) Titles, Etc . . . . . . . . . . . . . . . . . . . . . . 23
(k) Defaults . . . . . . . . . . . . . . . . . . . . . . . 23
(l) Casualties; Taking of Properties . . . . . . . . . . . 23
(m) Use of Proceeds; Margin Stock . . . . . . . . . . . . . 24
(n) Location of Business and Offices . . . . . . . . . . . 24
(o) Compliance with the Law . . . . . . . . . . . . . . . . 24
(p) No Material Misstatements . . . . . . . . . . . . . . . 24
(q) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 25
(r) Public Utility Holding Company Act . . . . . . . . . . 25
(s) Subsidiaries . . . . . . . . . . . . . . . . . . . . . 25
(t) Environmental Matters . . . . . . . . . . . . . . . . . 25
(u) Liens . . . . . . . . . . . . . . . . . . . . . . . . . 25
10. Conditions of Lending . . . . . . . . . . . . . . . . . . . 25
11. Affirmative Covenants . . . . . . . . . . . . . . . . . . . 27
(a) Financial Statements and Reports . . . . . . . . . . . 27
(b) Certificates of Compliance . . . . . . . . . . . . . . 28
(c) Accountants' Certificate . . . . . . . . . . . . . . . 29
(d) Taxes and Other Liens . . . . . . . . . . . . . . . . . 29
(e) Compliance with Laws . . . . . . . . . . . . . . . . . 29
(f) Further Assurances . . . . . . . . . . . . . . . . . . 29
(g) Performance of Obligations . . . . . . . . . . . . . . 29
(h) Insurance . . . . . . . . . . . . . . . . . . . . . . . 30
(i) Accounts and Records . . . . . . . . . . . . . . . . . 30
(j) Right of Inspection . . . . . . . . . . . . . . . . . . 30
(k) Notice of Certain Events . . . . . . . . . . . . . . . 31
(l) ERISA Information and Compliance . . . . . . . . . . . 31
(m) Environmental Reports and Notices . . . . . . . . . . . 31
(n) Compliance and Maintenance . . . . . . . . . . . . . . 31
(o) Operation of Properties . . . . . . . . . . . . . . . . 32
(p) Compliance with Leases and Other Instruments . . . . . 32
(q) Certain Additional Assurances Regarding
Maintenance and Operations of Properties . . . . . . . 33
(r) Sale of Certain Assets/Prepayment of Proceeds . . . . . 33
(s) Title Matters . . . . . . . . . . . . . . . . . . . . . 33
(t) Curative Matters . . . . . . . . . . . . . . . . . . . 33
(u) Change of Principal Place of Business . . . . . . . . . 33
12. Negative Covenants . . . . . . . . . . . . . . . . . . . . . 34
(a) Negative Pledge . . . . . . . . . . . . . . . . . . . . 34
(b) Current Ratio . . . . . . . . . . . . . . . . . . . . . 34
(c) Fixed Charge Coverage Ratio . . . . . . . . . . . . . . 34
(d) Minimum Net Worth. . . . . . . . . . . . . . . . . . . 34
(e) Debt to Worth Ratio. . . . . . . . . . . . . . . . . . 34
(f) Consolidations and Mergers . . . . . . . . . . . . . . 34
(g) Debts, Guaranties and Other Obligations . . . . . . . . 34
(h) Dividends . . . . . . . . . . . . . . . . . . . . . . . 35
(i) Loans and Advances . . . . . . . . . . . . . . . . . . 35
(j) Sale or Discount of Receivables . . . . . . . . . . . . 35
(k) Nature of Business . . . . . . . . . . . . . . . . . . 36
(l) Transactions with Affiliates . . . . . . . . . . . . . 36
(m) Hedging Transaction . . . . . . . . . . . . . . . . . . 36
(n) Investment . . . . . . . . . . . . . . . . . . . . . . 36
(o) Amendment to Articles of Incorporation or Bylaws . . . 36
(p) Sale of Assets . . . . . . . . . . . . . . . . . . . . 36
(q) Proceeds of Production . . . . . . . . . . . . . . . . 36
13. Events of Default . . . . . . . . . . . . . . . . . . . . . 37
14. Exercise of Rights . . . . . . . . . . . . . . . . . . . . . 39
15. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 39
16. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 39
17. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . 40
18. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 41
19. Invalid Provisions . . . . . . . . . . . . . . . . . . . . . 41
20. Maximum Interest Rate . . . . . . . . . . . . . . . . . . . 41
21. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . 41
22. Multiple Counterparts . . . . . . . . . . . . . . . . . . . 42
23. Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . 42
24. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 42
25. Parties Bound . . . . . . . . . . . . . . . . . . . . . . . 42
26. Participations . . . . . . . . . . . . . . . . . . . . . . . 42
27. Other Agreements . . . . . . . . . . . . . . . . . . . . . . 42
28. Financial Terms . . . . . . . . . . . . . . . . . . . . . . 43
RESTATED LOAN AGREEMENT
THIS RESTATED LOAN AGREEMENT (hereinafter referred to as the
"Agreement") executed as of the 20th day of December, 1995, by and
between Maynard Oil Company, a Delaware corporation ("Borrower") and
BANK ONE, TEXAS, N.A., a national banking association ("Bank").
W I T N E S S E T H:
WHEREAS, Borrower and First City, Texas-Dallas ("First City")
entered into a Credit Agreement dated as of October 1, 1990 (the "Loan
Agreement") under the terms of which Bank agreed to provide a term
loan facility in the amount of $10,000,000.00 to Borrower; and
WHEREAS, Borrower and First City entered into a First Amendment
to Loan Agreement, dated as of November 19, 1991 (the "First<PAGE>
Amendment") amending the Loan Agreement in certain respects as therein
set forth; and
WHEREAS, on October 30, 1992, First City was taken over by the
Federal Deposit Insurance Corporation ("FDIC") in the FDIC's capacity
as receiver; and
WHEREAS, the FDIC, as receiver of First City, assigned to New
First City, Texas-Dallas, N.A. ("New First City") all of the rights of
First City in and to the Loan Agreement, First Amendment, note and the
liens, security interest and other collateral securing same (the
"First City Debt"); and
WHEREAS, as of February 1, 1993, New First City assigned all of
its right, title and interest in and to the First City Debt to Bank;
and
WHEREAS, Borrower and Bank entered into a Second Amendment to
Loan Agreement, dated as of February 1, 1993 (the "Second Amendment")
amending the Loan Agreement in certain respects as therein set forth;
and
WHEREAS, Borrower and Bank entered into a Third Amendment to Loan
Agreement, dated as of December 22, 1994 (the "Third Amendment")
amending the Loan Agreement in certain respects as therein set forth;
and
WHEREAS, Borrower and Bank entered into a Fourth Amendment to
Loan Agreement, dated as of March 29, 1995 (the "Fourth Amendment")
amending the Loan Agreement in certain respects as therein set forth;
and
WHEREAS, Borrower and Bank have agreed to make certain amendments
to the Loan Agreement and restate the same in its entirety.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the following meanings (all terms defined in this Section 1
or in other provisions of this Agreement in the singular shall have
the same meanings as when used in the plural and vice versa):
"Affiliate" shall mean any Person which, directly or
indirectly, controls, is controlled by or is under common control
with the relevant Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with
respect to any Person, shall mean a member of the board of
directors, a partner or an officer of such Person, or any other
Person with possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of
such Person, through the ownership (of record, as trustee, or by
proxy) of voting shares, partnership interests or voting rights,
through a management contract or otherwise. Any Person owning or
controlling directly or indirectly ten percent or more of the
voting shares, partnership interests or voting rights, or other
equity interest of another Person shall be deemed to be an
Affiliate of such Person.
"Agreement" shall mean this Agreement as the same may be
amended, modified or restated from time to time.
"Bank" shall mean Bank One, Texas, N.A.
"Base Rate" shall mean the fluctuating rate of interest per
annum established from time to time by Bank as its Base Rate
(which rate of interest may not be the lowest, best or most
favorable rate of interest which Agent may charge on loans to its
customers). Each change in the Base Rate shall become effective
without prior notice to Borrower automatically as of the opening
of business on the date of such change in the Base Rate.
"Base Rate Interest Period" shall mean with respect to any
Base Rate Loan, the period (i) beginning on the date the Base
Rate Loan is made or the conversion of a CD Loan to a Base Rate
Loan or any reborrowing of a Eurodollar Loan as a Base Rate Loan
and (ii) ending on the date on which Borrower converts such
portion to a CD Loan or a Eurodollar Loan.
"Base Rate Loans" shall mean any loan during any period
which bears interest based upon the Base Rate or which would bear
interest based upon the Base Rate if the Maximum Rate ceiling was
not in effect at that particular time.
"Borrower" shall mean Maynard Oil Company, a Delaware
corporation.
"Borrowing Base" shall mean the value assigned by the Bank
from time to time to the Oil and Gas Properties pursuant to
Section 7 hereof. Until the next determination of the Borrowing
Base pursuant to Section 7(b) hereof the Borrowing Base shall be
$26,062,500.00.
"Business Day" shall mean the normal banking hours during
any day (other than Saturdays or Sundays) that banks are legally
open for business in Dallas, Texas.
"CD Interest Period" shall mean with respect to any CD Loan,
(i) initially, the period commencing on the date such CD Loan is
made and ending 30, 60, 90 or 180 days (or 365/366 days, if
consented to by Bank) thereafter as selected by Borrower in its
irrevocable Conversion/Continuation Notice as provided in
Sections 4(c) and (d) and (ii) thereafter, each period commencing
on the last day of the next preceding Interest Period applicable
to such CD Loan and in each case ending, 30, 60, 90 or 180 days
(or 365/366 days, if consented to by Bank) thereafter, as
selected by Borrower in its irrevocable Continuation/Conversion
Notice as provided in Sections 4(c) and (d); provided, that if CD
Interest Period would otherwise end on a day which is not a
Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would
be to carry such interest period into another calendar month, in
which event such Interest Period shall end on the immediately
preceding Business Day; and provided, further, there shall not at
any time be more than five (5) CD Loans, Base Rate Loans and
Eurodollar Tranches, in the aggregate outstanding. Any CD
Interest period pertaining to a CD Loan that begins on the last
Business Day of a calendar month (or on a day for which there is
not numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Business Day
of a calendar month, and no CD Interest Period selected shall end
after the Term Maturity Date.
"CD Loans" shall mean those portions of the Loan bearing
interest at the CD Rate, or which would bear interest at such
rate if the Maximum Rate ceiling was not in effect at a
particular time.
"CD Margin" shall mean one and six hundred seventy-five
thousandths percent (1.675%).
"CD Quoted Rate" shall mean with respect to each CD Interest
Period, the rate of interest per annum determined by Bank (in
accordance with its customary general practices) to be the
arithmetic simple average (rounded upwards, if necessary, to the
next highest .01 of 1%) of the rates per annum offered to Bank at
approximately 9:00 a.m. (Dallas time) on the first day of such CD
Interest Period, by three certificate of deposit dealers of
recognized standing, for the purchase at face value of a domestic
certificate of deposit from Bank in the amount equal or
comparable to the principal amount of the corresponding CD Loan
as of such first day, and for a period of time equal or
comparable to the length of such CD Interest Period.
"CD Rate" shall mean with respect to each CD Loan for each
Interest Period, a rate per annum equal to the following:
[ CD Quoted Rate ] + FDIC Percentage +CD
Margin
[1.00 - CD Reserve Requirement]
"CD Reserve Requirement" shall mean on any day, that
percentage (expressed as a decimal) which is in effect on such
day, as provided by the Board of Governors of the Federal Reserve
System (or any successor governmental body) applied for
determining the maximum reserve requirements for Bank (including
without limitation, basic, supplemental, marginal and emergency
reserves) under Regulation D applicable to three-month
nonpersonal time deposits in units of $100,000 or more (issued by
member banks of the Federal Reserve Bank of Dallas having time
deposits exceeding one billion dollars) rounded to the next
highest .01% of 1%. Each determination by Bank of the CD Reserve
Requirement shall, in the absence of manifest error, be
conclusive and binding.
"Chief Financial Officer" shall mean the chief financial
officer of Borrower unless stated otherwise.
"Chief Operating Officer" shall mean the chief operating
officer of Borrower unless stated otherwise.
"Collateral" shall mean all present and future tangible or
intangible property or rights in which Bank is to be granted a
security interest (whether perfected or enforceable or not),
including without limitation the items set forth in Section 6,
together with any other collateral now or hereafter securing
payment of all or any part of the Obligations.
"Commitment" shall mean $26,062,500.00.<PAGE>
"Companies" shall mean Borrower and all present and future
Subsidiaries of Borrower.
"Conversion/Continuation Notice" shall have the meaning
stated in Section 4(c).
"Current Assets" shall mean the total of the Borrower's
consolidated current assets determined in accordance with GAAP.
"Current Liabilities" shall mean the total of Borrower's
consolidated current obligations as determined in accordance with
GAAP, excluding therefrom current maturities due on the Funded
Debt.
"Default" shall mean any of the events specified in
Section 13, regardless of whether there shall have occurred any
passage of time or giving of notice or both that would be
necessary in order to constitute such event an Event of Default.
"Dry Hole Expense" shall mean all costs incurred by Borrower
in drilling unsuccessful wells (dry holes) under the
successful-efforts costing method of accounting.
"EBIDDA & T" shall mean for any period, the sum of (i) the
consolidated net earnings of the Companies before provisions for
income taxes for such period, plus (ii) Interest Expense which
was deducted and arriving at consolidating net earnings, plus
(iii) depreciation, depletion, amortization and federal income
taxes of the Companies for such period.
"Effective Date" shall mean the date of this Agreement.
"Environmental Laws" shall mean the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended by the Super Fund Amendments and Reauthorization Act
of 1986, 42 U.S.C.A. Section9601, et seq., the Resource
Conservation and Recovery Act, as amended by the Hazardous Solid
Waste Amendment of 1984, 42 U.S.C.A. Section6901, et seq., the
Clean Air Act, 42 U.S.C.A. Section1251, et seq., the Toxic
Substances Control Act, 15 U.S.C.A. Section2601, et seq., The Oil
Pollution Act of 1990, 33 U.S.G. Section2701, et seq., and all
other laws, statutes, codes, acts, ordinances, orders, judgments,
decrees, injunctions, rules, regulations, order and restrictions
of any federal, state, county, municipal and other governments,
departments, commissions, boards, agencies, courts, authorities,
officials and officers, domestic or foreign, relating to air
pollution, water pollution, noise control and/or the handling,
discharge, disposal or recovery of on-site or off-site asbestos
or "hazardous substances" as defined by 42 U.S.C. Section 9601,
et seq., as amended, as each of the foregoing may be amended from
time to time.
"Environmental Liability" shall mean any claim, demand,
obligation, cause of action, order, violation, damage, injury,
judgment, penalty or fine, cost of enforcement, cost of remedial
action or any other costs or expense whatsoever, including
reasonable attorneys' fees and disbursements, resulting from the
violation or alleged violation of any Environmental Law or the
imposition of any Environmental Lien (as hereinafter defined)
which could reasonably be expected to individually or in the
aggregate have a Material Adverse Effect.
"Environmental Lien" shall mean a Lien in favor of any
court, governmental agency or instrumentality or any other Person
(i) for any Environmental Liability or (ii) for damages arising
from or cost incurred by such court or governmental agency or
instrumentality or other person in response to a release or
threatened release of asbestos or "hazardous substance" into the
environment, the imposition of which Lien could reasonably be
expected to have a Material Adverse Effect.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
"Eurodollar Business Day" shall mean a Business Day on which
dealings in U.S. Dollar deposits are carried on in the London
interbank market.
"Eurodollar Interest Period" shall mean with respect to any
Eurodollar Loan (i) initially, the period commencing on the date
such Eurodollar Loan is made and ending one (1), two (2), three
(3) or six (6) months (or twelve (12) months, if consented to by
Bank) thereafter as selected by the Borrower in its irrevocable
Conversion/Continuation Notice as provided in Sections 4(c) and
(d), and (ii) thereafter each period commencing on the day
following the last day of the next preceding Interest Period
applicable to such Eurodollar Loan and ending one (1), two (2),
three (3) or six (6) months (or twelve (12) months, if consented
to by Bank) thereafter as selected by Borrower in its irrevocable
Conversion/Continuation Notice as provided in Sections 4(c) and
(d); provided, however, that (i) if any Eurodollar Interest
Period would otherwise expire on a day which is not a Eurodollar
Business Day, such Interest Period shall expire on the next
succeeding Eurodollar Business Day unless the result of such
extension would be to extend such Interest Period into the next
calendar month, in which case such Interest Period shall end on
the immediately preceding Eurodollar Business Day, (ii) if any
Eurodollar Interest Period begins on the last Eurodollar Business
Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of
such Interest Period) such Interest Period shall end on the last
Eurodollar Business Day of a calendar month, and (iii) any
Eurodollar Interest Period which would otherwise expire after the
Maturity Date shall end on such Maturity Date. There shall not
at any time be more than five (5) Eurodollar Loans, CD Loans and
Base Rate Loans, in the aggregate outstanding.
"Eurodollar Loan" shall mean any loan during any period
which bears interest at the Eurodollar Rate, or which would bear
interest at such rate if the Maximum Rate ceiling was not in
effect at a particular time.
"Eurodollar Margin" shall mean one and one-half percent
(1.50%).
"Eurodollar Rate" shall mean with respect to each Eurodollar
Interest Period, the rate of interest per annum at which deposits
in immediately available and freely transferable funds in U.S.
Dollars are offered to the Bank (at approximately 10:00 a.m.,
Dallas, Texas time three Eurodollar Business Days prior to the
first day of each Eurodollar Interest Period) in the London
interbank market for delivery on the first day of such Eurodollar
Interest Period in an amount equal to or comparable to the
principal amount of the Eurodollar Loan to which such Eurodollar
Interest Period relates. Each determination of the Eurodollar
Rate by the Bank shall, in the absence of error, be conclusive
and binding.
"FDIC Percentage" shall mean, on any date, the net
assessment rate (expressed as a percentage rounded to the next
highest point .01 of 1%) which is in effect on such day (under
the regulations of the Federal Deposit Insurance Corporation or
any successor) for determining the assessments paid by Bank to
the Federal Deposit Insurance Corporation (or any successor) for
insuring time deposits made in dollars at Bank's principal
offices in Dallas, Texas.
"Financial Statements" shall mean balance sheets, income
statements, statements of cash flow and appropriate footnotes and
schedules, prepared in accordance with GAAP.
"Fiscal Quarter" and "Fiscal Year" shall mean the fiscal
quarter and fiscal year of Borrower.
"Fixed Rate Loan" shall mean a Eurodollar Loan or a CD Loan
or both.
"Funded Debt" shall mean, as of any date, the sum of the
following (without duplication): (i) the aggregate of all
Indebtedness for borrowed money of the Companies as of such date,
other than Current Liabilities, (ii) all Indebtedness which would
be classified as "funded indebtedness" or "long-term
indebtedness" (or other similar classification) on a consolidated
balance sheet of the Companies prepared as of such date in
accordance with GAAP, (iii) all Indebtedness, whether secured or
unsecured, of the Companies, having a final maturity (or which is
renewable or extendable at the option of the obligor for a period
ending) more than one year after the date of creation thereof,
notwithstanding the fact that payments in respect thereof
(whether installment, serial, maturity or sinking fund payments,
or otherwise) are required to be made by the obligor less than
one year after the date of the creation, (iv) the aggregate of
all Indebtedness of the Companies outstanding under any revolving
credit or similar agreement providing for borrowings (and
renewals and extensions thereof) over a period of more than one
year, notwithstanding the fact that any such Indebtedness is
created within one year of the expiration of such agreement and
(v) the present value (discounted at the implicit rate, if known,
or 10% per annum otherwise) of all obligations in respect of
Capital Leases of the Companies.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Indebtedness" shall mean, with respect to any Person, all
indebtedness, obligations and liabilities of such Person,
including, without limitation and without duplication (i) all
liabilities, except deferred taxes, which would be reflected on a
balance sheet of such Person, prepared in accordance with GAAP;
(ii) all obligations of such Person in respect of any guaranty or
letter of credit; (iii) all obligations of such Person in respect
of any capital lease; and (iv) all obligations, indebtedness and
liabilities secured by any Lien on any property or assets of any
Person; except that, "Indebtedness" shall not include trade
payables incurred in the ordinary course of business for the
purchase of goods or services.
"Interest Expense" shall mean for any period, the
consolidated interest charges paid or accrued by the Companies
during such period (including imputed interest on capital lease
obligations and on Indebtedness of the Companies).
"Interest Payment Date" shall mean the last day of each
Interest Period for each Eurodollar Loan and CD Loan and the
first day of each January, April, July and October hereafter for
each Base Rate Loan, beginning January 1, 1996.
"Interest Period" shall mean any Base Rate Interest Period,
CD Interest Period or Eurodollar Interest Period.
"Lien" shall mean any lien, mortgage, deed of trust, pledge,
security interest, assignment, encumbrance, Environmental Lien or
other lien (statutory or otherwise) of every kind and character.
"Loans" shall mean the Loan made to Borrower pursuant to
Section 2 hereof.
"Loan Documents" shall mean this Agreement, the Note, the
Security Instruments and all other documents (and any amendments
or supplements thereto or modifications or restatements thereof)
executed in connection with the transaction described in this
Agreement.
"Material Adverse Effect " shall mean any circumstance or
event which (i) could have a material adverse effect on the
assets or properties, liabilities, financial condition, business,
operations, affairs or circumstances of the Borrower from the
facts represented or warranted in this Agreement or any other
Security Instrument, or (ii) could materially impair the ability
of the Borrower to carry out its business as of the date of this
Agreement or as proposed at the date of this Agreement to be
conducted or to meet its obligations under the Note, this
Agreement or the other Loan Documents on a timely basis or
(iii) is material and adverse to the financial condition or
business operations of Borrower, or (iv) may result in or cause a
Default or Event of Default.
"Maximum Rate" shall mean at any particular time in
question, the maximum non-usurious rate of interest which under
applicable law may then be charged on the Note. If such Maximum
Rate changes after the date hereof, the Maximum Rate shall be
automatically increased or decreased, as the case may be, without
notice to Borrower from time to time as the effective date of
each change in such Maximum Rate.
"Net Worth" shall mean, as of any date, the total
shareholders' equity (including common stock and preferred stock
other than mandatorily redeemable stock) at stated value,
additional paid-in capital and retained earnings (after deducting
treasury stock) which would appear on a consolidated balance
sheet of the Companies prepared as of such date in accordance
with GAAP.
"Non-Recourse Debt" shall mean any Indebtedness of Borrower
created after the date hereof, provided that (a) such
Indebtedness has been incurred by borrowing or constitutes an
obligation to pay the deferred purchase price of property;
(b) such Indebtedness is secured only by the assets so purchased;
and (c) the creditor to whom such Indebtedness is owed has no
recourse against Borrower, other than foreclosure of the Liens
securing such Indebtedness, to satisfy claims of such creditor
with respect to Borrower, such Indebtedness, the assets or
properties securing such Indebtedness, or any other features of
the transactions in which such Indebtedness was incurred.
"Note" shall mean the $26,062,500.00 Note described in
Section 3 hereof, together with all renewals and extensions
thereof or any part thereof.
"Obligations" shall mean all present and future
indebtedness, obligations and liabilities of Borrower to Bank,
and all renewals and extensions thereof, or any part thereof,
arising pursuant to this Agreement or any other Loan Document, or
represented by the Note, and all interest accruing thereon
(including, without limitation), interest which, but for the
filing of a petition in bankruptcy with respect to Borrower,
would accrue on such Obligations), and attorneys' fees incurred
in the enforcement or collection thereof, regardless of whether
such indebtedness, obligations and liabilities are direct,
indirect, fixed, contingent, joint, several or joint and several.
"Oil and Gas Properties" shall mean any and all oil, gas and
mineral properties and interests in which Borrower has granted
and hereafter grants to Bank first perfected liens.
"Permitted Dividends and Redemptions" shall mean:
(i) dividends from any Subsidiary of any Company (other than
Borrower) to Borrower or such Company, (ii) dividends from
Borrower to holders of equity securities of Borrower payable
solely in common stock or preferred stock (without mandatory
redemption features) of Borrower, and (iii) redemptions of the
common stock of Borrower in an amount not to exceed $3,000,000.00
in the aggregate for all such Redemptions made from and after
December 22, 1994.
"Permitted Liens" shall mean (i) royalties, overriding
royalties, reversionary interests, production payments and
similar burdens; (ii) sales contracts or other arrangements for
the sale of production of oil, gas or associated liquid or
gaseous hydrocarbons which would not (when considered
cumulatively with the matters discussed in clause (i) above)
deprive Borrower of any material right in respect of Borrower's
assets or properties (except for rights customarily granted with
respect to such contracts and arrangements); (iii) statutory
Liens for taxes or other assessments that are not yet delinquent
(or that, if delinquent, are being contested in good faith by
appropriate proceedings, levy and execution thereon having been
stayed and continue to be stayed and for which Borrower has set
aside on its books adequate reserves in accordance with GAAP);
(iv) easements, rights of way, servitudes, permits, surface
leases and other rights in respect to surface operations,
pipelines, grazing, logging, canals, ditches, reservoirs or the
like, conditions, covenants and other restrictions, and easements
of streets, alleys, highways, pipelines, telephone lines, power
lines, railways and other easements and rights of way on, over or
in respect of Borrower's assets or properties and that do not
individually or in the aggregate, cause a Material Adverse
Effect; (v) materialmen's, mechanic's, repairman's, employee's,
warehousemen's, landlord's, carrier's, pipeline's, contractor's,
sub-contractor's, operator's, non-operator's (arising under
operating or joint operating agreements), and other Liens
(including any financing statements filed in respect thereof)
incidental to obligations incurred by Borrower in connection with
the construction, maintenance, development, transportation,
storage or operation of Borrower's assets or properties to the
extent not delinquent (or which, if delinquent, are being
contested in good faith by appropriate proceedings and for which
Borrower has set aside on its books adequate reserves in
accordance with GAAP); (vi) all contracts, agreements and
instruments, and all defects and irregularities and other matters
affecting Borrower's assets and properties which were in
existence at the time Borrower's assets and properties were
originally acquired by Borrower and all routine operational
agreements entered into in the ordinary course of business, which
contracts, agreements, instruments, defects, irregularities and
other matters and routine operational agreements are not such as
to, individually or in the aggregate, interfere materially with
the operation, value or use of Borrower's assets and properties,
considered in the aggregate; (vii) liens in connection with
workmen's compensation, unemployment insurance or other social
security, old age pension or public liability obligations; (viii)
legal or equitable encumbrances deemed to exist by reason of the
existence of any litigation or other legal proceeding or arising
out of a judgment or award with respect to which an appeal is
being prosecuted in good faith and levy and execution thereon
have been stayed and continue to be stayed; (ix) rights reserved
to or vested in any municipality, governmental, statutory or
other public authority to control or regulate Borrower's assets
and properties in any manner, and all applicable laws, rules and
orders from any governmental authority; (x) landlord's liens;
(xi) Liens created by or pursuant to the Security Instruments;
and (xii) Liens existing at the date of this Agreement which have
been disclosed to Bank in the Borrower's September 30, 1995
Financial Statements or identified in Schedule "1" hereto.
"Permitted Purchase Money Indebtedness" shall mean
(i) purchase money Indebtedness of Borrower created after the
date hereof secured by a Permitted Purchase Money Lien, and
(ii) purchase money indebtedness existing on the date hereof
described on Schedule "1".
"Permitted Purchase Money Lien" shall mean any purchase
money Lien on real estate, motor vehicles, equipment and other
fixed assets acquired or built by Borrower (a "Purchase Money
Lien"); provided, however, that: (i) the transaction in which any
Purchase Money Lien is proposed to be created is not then
prohibited by this Agreement; (ii) any Purchase Money Lien shall
attach only to the asset acquired or built in such transaction
and shall not extend to or cover any other assets of Borrower;
(iii) the Indebtedness secured or covered by any Purchase Money
Lien shall not exceed the cost to Borrower of the asset acquired
or built; and (iv) such Indebtedness is either (x) incurred
within twelve (12) months following the date of the acquisition
or completion of the property or asset so acquired or
(y) incurred for the purpose of refinancing or refunding of any
existing Indebtedness secured by a Permitted Purchase Money Lien
provided the unpaid balance is not increased.
"Person" shall mean an individual, a corporation, a
partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or
an agency or instrumentality thereof.
"Plan" shall mean any plan subject to Title IV of ERISA and
maintained by Borrower, or any such plan to which Borrower is
required to contribute on behalf of its employees.
"Principal Payment Date" shall mean the first day of each
January, April, July and October commencing January 1, 1996.
"Reborrowing" shall mean the reborrowing of any CD Loan or
Eurodollar Loan upon the expiration of the Interest Period with
respect to each such Loan.
"Redemptions" shall mean, in respect of any corporation, any
and all funds, cash or other payments made in respect of the
redemption, repurchase or acquisition of any class of capital
stock of such corporation, unless such stock is redeemed or
acquired through the exchange of such stock with stock of the
same class.
"Security Instruments" shall mean, collectively, this
Agreement, all Deeds of Trust, Mortgages, Security Agreements,
Assignments of Production and Financing Statements, and other
collateral documents covering Borrower's Oil and Gas Properties
and related personal property and interests and the proceeds of
the foregoing, all such documents to be in form and substance
satisfactory to Bank.
"Subsidiary" shall mean any corporation or other entity of
which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time
directly or indirectly owned by Borrower or another subsidiary.
"Temporary Cash Investment" shall mean any investment in
(i) direct obligations of the United States or any agency
thereof, or obligations fully guaranteed by the United States or
any agency thereof (including indirect investments in such
obligations through repurchase agreements with commercial banks
or nationally recognized investment banks), provided that such
obligations mature within ninety (90) days of the date of
acquisition thereof, (ii) commercial paper rate in the highest
grade by two or more national credit rating agencies and maturing
not more than ninety (90) days from the date of acquisition
thereof, (iii) time deposits with, and certificates of deposit
and bank's acceptances issued by, Bank or any United States
commercial bank having capital, surplus and undivided profits
aggregating at least $250,000,000, (iv) money market funds
acceptable to Bank in its sole and absolute discretion, and
(v) commercial paper maturing not more than ninety (90) days from
the acquisition thereof issued by Bank.
"Term Loan" shall mean the loan described in Section 2
hereof.
"Term Maturity Date" shall mean January 1, 2001.
"Total Liabilities" shall mean Funded Debt, plus Current
Liabilities, minus Permitted Purchase Money Indebtedness minus,
Non-Recourse Debt minus deferred taxes plus all other liabilities
which would be reflected in a balance sheet prepared in
accordance with GAAP, of Borrower.
"Unscheduled Redeterminations" shall mean a redetermination
of the Borrowing Base made at any time other than on the dates
set for the regular semi-annual redetermination of the Borrowing
Base which are made (A) at the reasonable request of Borrower,
(B) at any time it appears to the Bank, in the exercise of their
reasonable discretion, that either (i) there has been a decrease
in the value of the Oil and Gas Properties, or (ii) an event has
occurred which is reasonably expected to have a Material Adverse
Effect.
2. TERM COMMITMENT OF THE BANK. As of the Effective Date,
there will be outstanding on the existing Term Loan the principal
amount of $13,026,500.00. On the terms and conditions hereinafter set
forth, the Bank agrees on the Effective Date to advance an additional
$13,000,000 on the Term Loan and to renew and extend the outstanding
balance into a new $26,062,500 Term Loan.
3. NOTE EVIDENCING LOAN. The loan described above in Section 2
shall be evidenced by a promissory note of Borrower as follows:
(a) Form of Note - The Term Loan shall be evidenced by a
Note in the face amount of $26,062,500.00, and shall be in the
form of Exhibit "A" hereto with appropriate insertions.
(b) Interest Rate - The unpaid principal balance of the
Note shall bear interest from time to time as set forth in
Section 4 hereof.
(c) Payment of Interest - Interest on the Note shall be
payable on each Interest Payment Date.
(d) Payment of Principal - The unpaid principal balance of
the Note shall be payable in one (1) installment of $1,062,500
due on January 1, 1996, followed by nineteen (19) equal
consecutive quarterly installments of $1,250,000 each due and
payable on each Principal Payment Date, commencing April 1, 1996
and continuing regularly thereafter, with one (1) final principal
installment due and payable on the Term Maturity Date in an
amount equal to the entire remaining principal balance plus all
accrued but unpaid interest.
4. INTEREST RATES.
(a) Options.
(i) Base Rate Loans. Borrower agrees to pay
interest on the Note calculated on the basis of the
actual days elapsed in a year consisting of 365 or, if
appropriate, 366 days with respect to the unpaid
principal amount of each Base Rate Loan from the date
the proceeds thereof are made available to Borrower
until maturity (whether by acceleration or otherwise),
at a varying rate per annum equal to the lesser of (i)
the Maximum Rate (defined herein), or (ii) the sum of
the Base Rate. Subject to the provisions of this
Agreement as to prepayment, the principal of the Note
representing Base Rate Loans shall be payable as
specified in Section 3(d) hereof and the interest in
respect of each Base Rate Loan shall be payable on each
Interest Payment Date. Past due principal and, to the
extent permitted by law, past due interest in respect
to each Base Rate Loan, shall bear interest, payable on
demand, at a rate per annum equal to the Maximum Rate.
(ii) Eurodollar Loans. Borrower agrees to pay
interest calculated on the basis of a year consisting
of 360 days with respect to the unpaid principal amount
of each Eurodollar Loan from the date the proceeds
thereof are made available to Borrower until maturity
(whether by acceleration or otherwise), at a varying
rate per annum equal to the lesser of (i) the Maximum
Rate, or (ii) the Eurodollar Rate plus the Eurodollar
Margin. Subject to the provisions of this Agreement
with respect to prepayment, the principal of the Note
shall be payable as specified in Section 3(d) hereof
and the interest with respect to each Eurodollar Loan
shall be payable on each Interest Payment Date. Past
due principal and, to the extent permitted by law, past
due interest shall bear interest, payable on demand, at
a rate per annum equal to the Maximum Rate. If Bank
shall not have received timely notice of a designation
of such Interest Period as herein provided, Borrower
shall be deemed to have elected to convert all maturing
Eurodollar Loans to Base Rate Loans.
(iii) CD Loans. Borrower agrees to pay
interest calculated on the basis of actual days elapsed
in a year consisting of 360 days with respect to the
unpaid principal amount of each CD Loan from the day
the proceeds thereof are made available to Borrower
until maturity (whether by acceleration or otherwise),
at a rate per annum equal to the lesser of (i) the
Maximum Rate, or (ii) the CD Rate. Interest with
respect to each CD Loan shall be payable on the
expiration date of each Interest Period applicable to
such CD Loan.
(b) Interest Rate Determination. The Bank shall determine
each interest rate applicable to the Term Loan hereunder. The
Bank shall give prompt notice to the Borrower of each rate of
interest so determined and its determination thereof shall be
conclusive absent error.
(c) Conversion Option. Borrower may elect from time to
time (i) to convert all or any part of its Eurodollar Loans to
Base Rate Loans or CD Loans by giving Bank irrevocable notice of
such election at least two (2) Eurodollar Business Days prior to
10:00 a.m. (Dallas, Texas time) in the form of Exhibit "B" (the
"Conversion/Continuation Notice") to be received on the
conversion date and such conversion shall be made on the
requested conversion date, provided that any such conversion of
Eurodollar Loan shall only be made on the last day of the
Eurodollar Interest Period with respect thereof, (ii) to convert
all or any part of its Base Rate Loans to Eurodollar Loans or CD
Loans by giving the Bank an irrevocable Conversion/Continuation
Notice at least three (3) Eurodollar Business Days (in the case
of a conversion to Eurodollar Loans) or two (2) Business Days (in
the case of a conversion to CD Loans) prior to the proposed
conversion, specifying the Eurodollar Interest Period or the CD
Interest Period, as the case may be therefore, and such
conversion shall be made on the requested conversion date or, if
such requested conversion date is not a Eurodollar Business Day
or a Business Day, as the case may be, on the next succeeding
Eurodollar Business Day or Business Day, as the case may be, and
(iii) to convert all or any part of its CD Loans to Eurodollar
Loans or Base Rate Loans by giving the Bank an irrevocable
Conversion/Continuation Notice at least three (3) Eurodollar
Business Days (in the case of conversion to Eurodollar Loans) or
two (2) Business Days (in the case of conversion to Base Rate
Loans) prior to the proposed conversion, specifying the
Eurodollar Interest Period, if any therefore, and such conversion
shall be made on the requested conversion date or, if such
requested conversion date is not a Eurodollar Business Day or a
Business Day, as the case may be, on the next succeeding
Eurodollar Business Day, as the case may be. Each change in an
Interest Option made pursuant to this Section 4(c) shall be
deemed a reborrowing (notwithstanding that the unpaid principal
amount of the Term Loan is not thereby changed) of a CD Loan, a
Eurodollar Loan or a Base Rate Loan into which such change was
made on the date of such change. If no Conversion/Continuation
Notice is given with respect to all or any portion of a Loan,
Borrower shall be deemed to have elected to reborrow such portion
of the Loan as a Base Rate Loan.
(d) Continuation Option. Prior to the termination of each
CD Interest Period or Eurodollar Interest Period, Borrower may
give the Bank a Conversion/Continuation Notice electing to
continue all or part of the loan related thereto as the same type
of loan upon the expiration of such CD Interest Period or
Eurodollar Interest Period. Such Conversion/Continuation Notice
shall be given to Bank at least three (3) Eurodollar Business
Days prior to the termination of such Eurodollar Interest Period
and at least two (2) Business Days prior to the termination of
such CD Interest Period and shall specify the length of the
succeeding CD Interest Period or Eurodollar Interest Period, as
the case may be (subject to the provisions of the definitions of
such term), selected by Borrower with respect to such portion.
If no Conversion/Continuation Notice is given with respect to all
or any portion of a Loan, Borrower shall be deemed to have
elected to reborrow such portion of the Loan as a Base Rate Loan.
(e) Recoupment. If at any time the applicable rate of
interest selected pursuant to Sections 4(a)(i), 4(a)(ii) or
4(a(iii) above shall exceed the Maximum Rate, thereby causing the
interest on the Note to be limited to the Maximum Rate, then any
subsequent reduction in the interest rate so selected or
subsequently selected shall not reduce the rate of interest on
the Note below the Maximum Rate until the total amount of
interest accrued on the Note equals the amount of interest which
would have accrued on the Note if the rate or rates selected
pursuant to Sections 4(a)(i), (ii) or (iii), as the case may be,
had at all times been in effect.
(f) Options Upon Default. Notwithstanding anything in this
Section 4 to the contrary, no CD Loan or Eurodollar Loan may be
continued as such when any Default or Event of Default has
occurred, but each such CD Loan or Eurodollar Loan shall be
automatically converted to a Base Rate Loan on the last day of
each Interest Period applicable to such CD Loan or Eurodollar
Loan.
5. SPECIAL PROVISIONS RELATING TO FIXED RATE LOANS.
(a) Unavailability of Funds or Inadequacy of Pricing. In
the event that, in connection with any proposed Fixed Rate Loan,
Bank (i) shall have determined that either (A) that U.S. Dollar
deposits of the relevant amount and for the relevant Eurodollar
Interest Period for Eurodollar Loans are not available to Bank in
the London interbank market, or (B) that no timely quotation of
the applicable rate offered to Bank for Certificates of Deposit
for the CD Interest Period is available; or (ii) in good faith
determines that the Eurodollar Interest Rate or the CD Interest
Rate will not adequately reflect the cost to the Bank of
maintaining or funding the Fixed Rate Loans for such Interest
Period, the obligations of the Bank to make the Eurodollar Loans
or CD Loans, as the case may be, shall be suspended until such
time such Bank in its sole discretion reasonably exercised
determines that the event resulting in such suspension has ceased
to exist. If Bank shall make such determination it shall
promptly notify Borrower in writing, and Borrower shall either
repay the outstanding Eurodollar Loans or CD Loans, as the case
may be, owed to Bank, without penalty, on the last day of the
current Interest Period or convert the same to Base Rate or CD
Loans in the case of Eurodollar Loans or Base Rate or Eurodollar
Loans in the case of CD Loans on the last day of the then current
Interest Period for such Fixed Rate Loan.
(b) Reserve Requirements. In the event of any change in
any applicable law, treaty or regulation or in the interpretation
or administration thereof, or in the event any central bank or
other fiscal monetary or other authority having jurisdiction over
the Bank or the loans contemplated by this Agreement shall
impose, modify or deem applicable any reserve requirement of the
Board of Governors of the Federal Reserve System on any Fixed
Rate Loan or loans, or any other reserve, special deposit, or
some requirements against assets to, deposits with or for the
account of, or credit extended by, the Bank or shall impose on
the Bank or the London interbank market, as the case may be, any
other condition affecting this Agreement or the Fixed Rate Loans
and the result of any of the foregoing is to increase the cost to
the Bank in making or maintaining its Fixed Rate Loans or to
reduce any amount (or the effective return on any amount)
received by the Bank hereunder, then Borrower shall pay to the
Bank upon demand of the Bank as additional interest on the Note
evidencing the Fixed Rate Loans such additional amount or amounts
as will reimburse the Bank for such additional cost or such
reduction. The Bank shall give notice to Borrower upon becoming
aware of any such change or imposition which may result in any
such increase or reduction. A certificate of Bank setting forth
the basis for the determination of such amount necessary to
compensate Bank as aforesaid shall be delivered to Borrower and
shall be conclusive as to such determination and such amount,
absent error.
(c) Taxes. Both principal and interest on the Note
evidencing the Fixed Rate Loans are payable without withholding
or deduction for or on account of any taxes. If any taxes are
levied or imposed on or with respect to the Note evidencing the
Fixed Rate Loans or on any payment on the Note evidencing the
Fixed Rate Loans made to the Bank, then, and in any such event,
Borrower shall pay to the Bank upon demand of the Bank such
additional amounts as may be necessary so that every net payment
of principal and interest on the Note evidencing the Fixed Rate
Loans, after withholding or deduction for or on account of any
such taxes, will not be less than any amount provided for herein.
In addition, if at any time when the Fixed Rate Loans are
outstanding any laws enacted or promulgated, or any court of law
or governmental agency interprets or administers any law, which,
in any such case, materially changes the basis of taxation of
payments to the Bank of principal of or interest on the Note
evidencing the Fixed Rate Loans by reason of subjecting such
payments to double taxation or otherwise (except through an
increase in the rate of tax on the overall net income of Bank)
then Borrower will pay the amount of loss to the extent that such
loss is caused by such a change. The Bank shall give notice to
Borrower upon becoming aware of the amount of any loss incurred
by the Bank through enactment or promulgation of any such law
which materially changes the basis of taxation of payments to the
Bank. The Bank shall also give notice on becoming aware of any
such enactment or promulgation which may result in such payments
becoming subject to double taxation or otherwise. A certificate
of any Bank setting forth the basis for the determination of such
loss and the computation of such amounts shall be delivered to
Borrower and shall be conclusive of such determination and such
amount, absent error.
(d) Change in Laws. If at any time any new law or any
change in existing laws or in the interpretation of any new or
existing laws shall make it unlawful for the Bank to maintain or
fund any Fixed Rate Loans hereunder, then the Bank shall promptly
notify Borrower in writing and Borrower shall either repay the
outstanding Eurodollar or CD Loans, as the case may be, owed to
the Bank, without penalty, on the last day of the current
Interest Periods (or, if the Bank may not lawfully continue to
maintain and fund such Eurodollar or CD Loans, immediately), or
Borrower may convert such Eurodollar or CD Loans at such
appropriate time to Base Rate Loans.
(e) Option to Fund. The Bank shall have the option if the
Borrower elect a Fixed Rate Loan, to purchase one or more
deposits in order to fund or maintain its funding of the
principal balance of the Note to which such Fixed Rate Loan is
applicable during the Interest Period in question; it being
understood that the provisions of this Agreement relating to such
funding are included only for the purpose of determining the rate
of interest to be paid under such Fixed Rate Loan and any amounts
owing hereunder and under the Note. The Bank shall be entitled
to fund and maintain its funding of all or any part of that
portion of the principal balance of the Note in any manner it
sees fit, but all such determinations hereunder shall be made as
if the Bank have actually funded and maintained that portion of
the principal balance of the Note to which a Fixed Rate Loan is
applicable during the applicable Interest Period through the
purchase of deposits in an amount equal to the principal balance
of the Note to which such Fixed Rate Loan is applicable and
having a maturity corresponding to such Interest Period. The
Bank may fund the outstanding principal balance of the Note which
is to be subject to any Fixed Rate Loan from any branch or office
of the Bank as the Bank may designate from time to time.
(f) Indemnity. Borrower shall indemnify and hold harmless
the Bank against all reasonable and necessary out-of-pocket costs
and expenses which the Bank may sustain (i) as a consequence of
any default by Borrower under this Agreement, or (ii) as a result
of the making of any loan or loans as a Fixed Rate Loan.
(g) Payments Not at End of Interest Period. If the
Borrower make any payment of principal with respect to any Fixed
Rate Loan on any day other than the last day of the Interest
Period applicable to such Fixed Rate Loan, then Borrower shall
reimburse the Bank on demand for any loss, cost or expense
incurred by the Bank as a result of the timing of such payment or
in redepositing such principal amount, including the sum of (i)
the cost of funds to the Bank in respect of such principal amount
so paid, for the remainder of the Interest Period applicable to
such sum, reduced, if the Bank is able to redeposit such
principal amount so paid for the balance of the Interest Period,
by the interest earned by Bank as a result of so redepositing
such principal amount, plus (ii) any expense or penalty incurred
by the Bank in redepositing such principal amount. A certificate
of Bank setting forth the basis for the determination of the
amount owed by Borrower pursuant to this Section 5(g) shall be
delivered to the Borrower and shall be conclusive in the absence
of manifest error.
(h) Maximum Number of Loans. The total number of Loans
which may be outstanding at any time hereunder shall never exceed
five (5), whether such Loans are Base Rate Loans, CD Loans,
Eurodollar Loans or a combination thereof.
6. COLLATERAL SECURITIES. To secure the performance by
Borrower of its obligations hereunder, and under the Note and Security
Instruments, whether now or hereafter incurred, matured or unmatured,
direct or contingent, joint or several, or joint and several,
including extensions, modifications, renewals and increases thereof,
and substitutions therefore, Borrower has previously granted and
assigned to Bank a first and prior security interest and Lien on
certain of its Oil and Gas Properties, and on certain related
equipment, oil and gas inventory and proceeds of the foregoing. To
further secure the performance by Borrower of the aforesaid
obligations, Borrower shall contemporaneously with or prior to the
execution of this Agreement, grant and assign to the Bank a first and
prior security interest and Lien on certain additional Oil and Gas
Properties and on certain additional related equipment, oil and gas
inventory and proceeds of the foregoing. All Oil and Gas Properties
and other collateral in which Borrower has heretofore granted or
hereafter grants to the Bank a first and prior Lien (to the
satisfaction of the Bank) in accordance with this Section 6, as such
properties and interests are from time to time constituted, are
hereinafter collectively called the "Collateral."
The granting and assigning of such security interests and Liens
by Borrower shall be pursuant to Security Instruments in form and
substance reasonably satisfactory to the Bank. Concurrently with the
delivery of each of the Security Instruments, Borrower shall furnish
to the Bank mortgage and title opinions and other title information
satisfactory to Bank with respect to the title and Lien status of
Borrower's interests in the Oil and Gas Properties covered by the
Security Instruments as Bank shall have designated. Borrower will
cause to be executed and delivered to the Bank, in the future,
additional Security Instruments if the Bank reasonably deems such are
necessary to insure perfection or maintenance of Bank's security
interests and Liens in the Oil and Gas Properties or any part thereof.
7. BORROWING BASE.
(a) Initial Borrowing Base. During the period from the
date hereof to the first Determination Date (as hereinafter
defined), the Borrowing Base shall be $26,062,500.00.
(b) Subsequent Determinations of Borrowing Base.
Subsequent determinations of the Borrowing Base shall be made by
the Bank at least semi-annually on May 1 and November 1 of each
year beginning May 1, 1996 or as Unscheduled Redeterminations.
The Borrower shall furnish to the Bank as soon as possible but in
any event no later than April 1 of each year, beginning April 1,
1996, or within thirty (30) days after either (i) receipt of
notice from Bank that it requires an Unscheduled Redetermination,
or (ii) the Borrower give notice to Bank of their desire to have
an Unscheduled Redetermination performed, with an engineering
report in form and substance satisfactory to Bank prepared by
Borrower and audited by a petroleum engineering firm acceptable
to Bank, valuing the Oil and Gas Properties utilizing economic
and pricing parameters used by Bank as established from time to
time, together with such other information, report and data
concerning the value of the Oil and Gas Properties as Bank shall
deem reasonably necessary to determine the value of such Oil and
Gas Properties. Bank shall by notice to the Borrower no later
than May 1 and November 1 of each year, or within a reasonable
time thereafter (herein called the "Determination Date"),
designate a new Borrowing Base for the period beginning on such
Determination Date and continuing until, but not including, the
next Determination Date. If an Unscheduled Redetermination is
made by the Bank, the Bank shall notify the Borrower within a
reasonable time after receipt of all requested information of the
new Borrowing Base, and such new Borrowing Base shall continue
until the next Determination Date. If the Borrower do not
furnish all such information, reports and data by the date
specified in this Section 7(b), unless such failure is of no
fault of the Borrower, the Bank may nonetheless designate the
Borrowing Base at any amounts which the Bank determines in its
discretion and may redesignate the Borrowing Base from time to
time thereafter until the Bank receives all such information,
reports and data, whereupon the Bank shall designate a new
Borrowing Base as described above. The Bank shall determine the
amount of the Borrowing Base based upon the loan collateral value
which Bank in its discretion (using such methodology, assumptions
and discounts rates as Bank customarily uses in assigning
collateral value to oil and gas properties, oil and gas gathering
systems, gas processing and plant operations) assigns to such Oil
and Gas Properties of the Borrower at the time in question and
based upon such other credit factors consistently applied
(including, without limitation, the assets, liabilities, cash
flow, business, properties, prospects, management and ownership
of the Borrower and its affiliates) as Bank customarily considers
in evaluating similar oil and gas credits. It is expressly
understood that the Bank has no obligation to designate the
Borrowing Base at any particular amounts, except in the exercise
of Bank's discretion. Provided, however, that Bank shall not
have the obligation to designate a Borrowing Base in an amount in
excess of its legal or internal lending limits.
8. PREPAYMENTS.
(a) Voluntary Prepayments. The Borrower may at any time
and from time to time, without penalty or premium, prepay the
Note, in whole or in part. Each such prepayment shall be made on
at least five (5) Business Days' notice to Bank and shall be in
an amount of $500,000 or more in increments of $250,000 or the
unpaid balance on the Note, whichever is less, plus accrued
interest thereon to the date of prepayment. If Borrower shall
prepay the principal of any CD Loan or Eurodollar Loan on any
date other than the last day of the Interest Period applicable
thereto, Borrower shall make the payments required by
Section 5(g).
(b) Mandatory Prepayment For Borrowing Base Deficiency. In
the event the outstanding principal balance of the Note ever
exceed the Borrowing Base as determined by Bank pursuant to
Section 7(b) hereof, the Borrower shall, within sixty (60) days
thereof, either (A) by instruments reasonably satisfactory in
form and substance to the Bank, provide the Bank with collateral
with value and quality in amounts satisfactory to the Bank in its
discretion in order to increase the Borrowing Base by an amount
at least equal to such excess, or (B) prepay, without premium or
penalty, the principal amount of the Note in an amount at least
equal to such excess plus accrued interest thereon to the date of
prepayment. Each prepayment required to be made pursuant to this
Section 8(b) is subject to the provisions of Section 5(g) hereof,
provided that, if and to the extent the amount required to be
prepaid hereunder exceeds the aggregate principal amount of the
Base Rate Loans then outstanding, Borrower may, at its option,
pay the amount of principal of the CD and/or Eurodollar Loans
required to be prepaid pursuant to this Section 8(b) to Bank for
deposit in a special collateral account to be established for
this purpose. Such amount shall be held by Bank in such
collateral account subject to and in accordance with the
provisions of this Section 8(b) until the end of the relevant
Interest Period or Periods for such CD Loans and/or Eurodollar
Loans and thereupon applied to the prepayment of such CD Loans
and/or Eurodollar Loans. Borrower hereby directs Bank to apply,
and Bank shall apply, any amounts so deposited in any such
collateral account to prepay such CD Loans and/or Eurodollar
Loans at the end of such relevant Interest Period or Periods.
9. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank
to enter into this Agreement, the Borrower hereby represents and
warrants to the Bank (which representations and warranties will
survive the delivery of the Note) that:
(a) Creation and Existence. Borrower is a corporation duly
organized, validly existing and in good standing under the laws
of the jurisdiction in which it was formed and is duly qualified
in all jurisdictions wherein failure to qualify may result in a
Material Adverse Effect. Borrower has all power and authority to
own its properties and assets and to transact the business in
which it is engaged.
(b) Power and Authority. Borrower is duly authorized and
empowered to create and issue the Note; and Borrower is duly
authorized and empowered to execute, deliver and perform the Loan
Documents, including this Agreement; and all corporate action on
each Borrower's part requisite for the due creation and issuance
of the Note and for the due execution, delivery and performance
of the Loan Documents, including this Agreement, has been duly
and effectively taken.
(c) Binding Obligations. This Agreement does, and the Note
and other Loan Documents upon their creation, issuance, execution
and delivery will, constitute valid and binding obligations of
Borrower, enforceable in accordance with its respective terms
(except that enforcement may be subject to any applicable
bankruptcy, insolvency, or similar debtor relief laws now or
hereafter in effect and relating to or affecting the enforcement
of creditors rights generally).
(d) No Legal Bar or Resultant Lien. The Note and the Loan
Documents, including this Agreement, do not and will not, violate
any provisions of any contract, agreement, law, regulation,
order, injunction, judgment, decree or writ to which Borrower is
subject, or result in the creation or imposition of any lien or
other encumbrance upon any assets or properties of Borrower,
other than those contemplated by this Agreement.
(e) No Consent. The execution, delivery and performance by
the Borrower of the Note and the Loan Documents, including this
Agreement, does not require the consent or approval of any other
person or entity, including without limitation any regulatory
authority or governmental body of the United States or any state
thereof or any political subdivision of the United States or any
state thereof except for consents required for federal, state
and, in some instances, private leases, right of ways and other
conveyances or encumbrances of oil and gas leases (all of which
consents have been obtained by the Borrower).
(f) Financial Condition. The audited Financial Statements
of Borrower dated December 31, 1994 and the unaudited Financial
Statements of Borrower dated September 30, 1995, which have been
delivered to Bank are complete and correct in all material
respects, and fully and accurately reflect in all material
respects the financial condition and results of the operations of
the Borrower as of the date or dates and for the period or
periods stated. No change has since occurred in the condition,
financial or otherwise, of the Borrower which is reasonably
expected to have a Material Adverse Effect, except as disclosed
to the Bank in Schedule "2" attached hereto.
(g) Liabilities. Borrower does not have any material
(individually or in the aggregate) liability, direct or
contingent, except as disclosed to the Bank in the Financial
Statements and on Schedule "3" attached hereto. No unusual or
unduly burdensome restrictions, restraint, or hazard exists by
contract, law or governmental regulation or otherwise relative to
the business, assets or properties of Borrower which is
reasonably expected to have a Material Adverse Effect.
(h) Litigation. Except as described in the Financial
Statements, or as otherwise disclosed to the Bank in Schedule "4"
attached hereto, there is no litigation, legal or administrative
proceeding, investigation or other action of any nature pending
or, to the knowledge of the officers of Borrower threatened
against or affecting Borrower which involves the possibility of
any judgment or liability not fully covered by insurance, and
which is reasonably expected to have a Material Adverse Effect.
(i) Taxes; Governmental Charges. Borrower has filed all
tax returns and reports required to be filed and has paid all
taxes, assessments, fees and other governmental charges levied
upon it or its assets, properties or income which are due and
payable, including interest and penalties, the failure of which
to pay could reasonably be expected to have a Material Adverse
Effect, except such as are being contested in good faith by
appropriate proceedings and for which adequate reserves for the
payment thereof as required by GAAP has been provided and levy
and execution thereon have been stayed and continue to be stayed.
(j) Titles, Etc. Borrower has good and defensible title to
all of its respective assets, including without limitation, the
Oil and Gas Properties, free and clear of all liens or other
encumbrances except Permitted Liens.
(k) Defaults. Borrower is not in default and no event or
circumstance has occurred which, but for the passage of time or
the giving of notice, or both, would constitute a default under
any loan or credit agreement, indenture, mortgage, deed of trust,
security agreement or other agreement or instrument to which
Borrower is a party in any respect that would be reasonably
expected to have a Material Adverse Effect. No Event of Default
hereunder has occurred and is continuing.
(l) Casualties; Taking of Properties. Since the dates of
the latest Financial Statements of the Borrower delivered to
Bank, neither the business nor the assets or properties of
Borrower have been affected (to the extent it is reasonably
likely to cause a Material Adverse Effect), as a result of any
fire, explosion, earthquake, flood, drought, windstorm, accident,
strike or other labor disturbance, embargo, requisition or taking
of property or cancellation of contracts, permits or concessions
by any domestic or foreign government or any agency thereof,
riot, activities of armed forces or acts of God or of any public
enemy.
(m) Use of Proceeds; Margin Stock. The $13,000,000 in new
proceeds of the Loan hereunder will be used by the Borrower for
the purposes of acquiring oil and gas properties located in Garza
County, Texas from Energy Development Corp. Borrower is not
engaged principally or as one of its important activities in the
business of extending credit for the purpose of purchasing or
carrying any "margin stock" as defined in Regulation U of the
Board of Governors of the Federal Reserve System (12 C.F.R. Part
221), or for the purpose of reducing or retiring any indebtedness
which was originally incurred to purchase or carry a margin stock
or for any other purpose which might constitute this transaction
a "purpose credit" within the meaning of said Regulation U.
Neither Borrower nor any person or entity acting on behalf
of Borrower has taken or will take any action which might cause
the loans hereunder or any of the Loan Documents, including this
Agreement, to violate Regulation U or any other regulation of the
Board of Governors of the Federal Reserve System or to violate
the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may
hereafter be in effect.
(n) Location of Business and Offices. The principal place
of business and chief executive office of the Borrower is located
at the address stated in Section 15 hereof.
(o) Compliance with the Law. To the best of Borrower's
knowledge, Borrower:
(i) is not in violation of any law, judgment, decree,
order, ordinance, or governmental rule or regulation to
which Borrower, or any of its assets or properties are
subject; or
(ii) has not failed to obtain any license, permit,
franchise or other governmental authorization necessary to
the ownership of any of its assets or properties or the
conduct of its business;
which violation or failure is reasonably expected to have a
Material Adverse Effect.
(p) No Material Misstatements. No information, exhibit or
report furnished by Borrower to the Bank in connection with the
negotiation of this Agreement contained any material misstatement
of fact or omitted to state a material fact or any fact necessary
to make the statement contained therein not materially
misleading.
(q) ERISA. Borrower is in compliance in all material
respects with the applicable provisions of ERISA, and no
"reportable event", as such term is defined in Section 403 of
ERISA, has occurred with respect to any Plan of Borrower.
(r) Public Utility Holding Company Act. Borrower is not a
"holding company", or "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", or a "public
utility" within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
(s) Subsidiaries. All of the Borrower's Subsidiaries are
listed on Schedule "5" hereto.
(t) Environmental Matters. Except as disclosed on
Schedule "6", Borrower (i) has not received notice or otherwise
learned of any Environmental Liability which would be reasonably
likely to individually or in the aggregate have a Material
Adverse Effect arising in connection with (A) any non-compliance
with or violation of the requirements of any Environmental Law or
(B) the release or threatened release of any toxic or hazardous
waste into the environment, (ii) has not received notice of any
threatened or actual liability in connection with the release or
notice of any threatened release of any toxic or hazardous waste
into the environment which would be reasonably likely to
individually or in the aggregate have a Material Adverse Effect
or (iii) has not received notice or otherwise learned of any
federal or state investigation evaluating whether any remedial
action is needed to respond to a release or threatened release of
any toxic or hazardous waste into the environment for which
Borrower is or may be liable which may reasonably be expected to
result in a Material Adverse Effect.
(u) Liens. Except (i) as disclosed on Schedule "1" hereto
and (ii) for Permitted Liens, the assets and properties of the
Borrower is free and clear of all liens and encumbrances.
10. CONDITIONS OF LENDING.
(a) The effectiveness of this Agreement and the obligation
of the Bank to make the additional advances in the Term Loan
shall be subject to the following conditions precedent:
(i) Execution and Delivery. The Borrower shall have
executed and delivered the Note, this Agreement, the
Security Instruments and other required documents, all in
form and substance satisfactory to the Bank;
(ii) Legal Opinion. The Bank shall have received from
Borrower's legal counsel a favorable legal opinion in form
and substance satisfactory to the Bank, generally in the
form of the opinion furnished in connection with the
execution of the Loan Agreement on October 1, 1990;
(iii) Corporate Resolutions. The Bank shall have
received appropriate certified corporate resolutions of
Borrower;
(iv) Good Standing. The Bank shall have received
evidence of existence and good standing for Borrower (except
for Mississippi and Oklahoma which will be provided when
available to Borrower);
(v) Incumbency. The Bank shall have received a signed
certificate of Borrower, certifying the names of the
officers of Borrower authorized to sign loan documents on
behalf of Borrower, together with the true signatures of
each such officer. The Bank may conclusively rely on such
certificate until the Bank receives a further certificate of
Borrower canceling or amending the prior certificate and
submitting signatures of the officers named in such further
certificate;
(vi) Articles of Incorporation and Bylaws. The Bank
shall have received copies of the Articles of Incorporation
of Borrower and all amendments thereto, certified by the
Secretary of State of the State of Delaware, and a copy of
the bylaws of Borrower and all amendments thereto, certified
by an officer of Borrower as being true, correct and
complete;
(vii) Title. The Bank shall have received
satisfactory evidence to the state of the title to the Oil
and Gas Properties being acquired from Energy Development
Corp. and being mortgaged to the Bank contemporaneously
herewith;
(viii) Energy Development Corp. Acquisition. The
Bank shall have received satisfactory evidence that the
acquisition of the Garza County, Texas properties from
Energy Development Corp. has closed or is closing
simultaneously with the closing of the loan transaction
described in this Agreement.
(ix) Representation and Warranties. The
representations and warranties of Borrower under this
Agreement are true and correct in all material respects as
of such date, as if then made (except to the extent that
such representations and warranties related solely to an
earlier date);
(x) No Event of Default. No Event of Default shall
have occurred and be continuing nor shall any event have
occurred or failed to occur which, with the passage of time
or service of notice, or both, would constitute an Event of
Default;
(xi) Other Documents. Bank shall have received
such other instruments and documents incidental and
appropriate to the transaction provided for herein as Bank
or its counsel may reasonably request, and all such
documents shall be in form and substance reasonably
satisfactory to the Bank; and
(xii) Legal Matters Satisfactory. All legal
matters incident to the consummation of the transactions
contemplated hereby shall be reasonably satisfactory to
special counsel for Bank retained at the expense of the
Borrower.
11. AFFIRMATIVE COVENANTS. A deviation from the provisions of
this Section 11 shall not constitute an Event of Default under this
Agreement if such deviation is consented to in writing by Bank.
Without the prior written consent of Bank, the Borrower will at all
times comply with the covenants contained in this Section 11 from the
date hereof and for so long as any part of the Term Loan is
outstanding.
(a) Financial Statements and Reports. Borrower shall
promptly furnish to the Bank from time to time upon request such<PAGE>
information regarding the business and affairs and financial
condition of Borrower, as the Bank may reasonably request, and
will furnish to the Bank:
(i) Annual Audited Financial Statements. As soon as
available, and in any event within one hundred twenty (120)
days after the close of each fiscal year beginning with the
fiscal year ended December 31, 1995, the annual audited
consolidated and consolidating Financial Statements of
Borrower, prepared in accordance with GAAP accompanied by an
unqualified opinion rendered by an independent accounting
firm reasonably acceptable to the Bank;
(ii) Quarterly Financial Statements. As soon as
available, and in any event within sixty (60) days after the
end of each calendar quarter of each year (except the last
calendar quarter of any fiscal year), beginning with the
fiscal quarter ended March 31, 1996, the quarterly unaudited
consolidated and consolidating Financial Statements of
Borrower prepared in accordance with GAAP, certified to by
the Chief Financial Officer of Borrower as being true and
correct;
(iii) Report on Properties. As soon as available
and in any event on or before April 1 of each calendar year,
and at such other times as Bank, in accordance with Section
7 hereof, may request, the engineering reports required to
be furnished to the Bank under such Section 7 on the Oil and
Gas Properties;
(iv) SEC Reports. As soon as available, and in any
event within five (5) days of filing, copies of all filings
by Borrower with the Securities and Exchange Commission;
(v) Audit Reports. Promptly upon receipt thereof, one
(1) copy of each written report submitted to Borrower by
independent accountants and any annual, quarterly or special
audit, review or examination;
(vi) Additional Information. Promptly upon request of
the Bank from time to time any additional financial
information or other information that the Bank may
reasonably request.
All such reports, information, balance sheets and Financial
Statements referred to in Subsection 11(a) above shall be in such
detail as the Bank may reasonably request and shall be prepared
in a manner consistent with the Financial Statements.
(b) Certificates of Compliance. Concurrently with the
furnishing of the annual audited Financial Statements pursuant to
Subsection 11(a)(i) hereof and the quarterly unaudited Financial
Statements pursuant to Subsection 11(a)(ii) hereof, Borrower will
furnish or cause to be furnished to the Bank a certificate in the
form of Exhibit "C" attached hereto, signed by the Chief
Financial Officer of Borrower, (i) stating that Borrower has
fulfilled in all material respects its obligations under the Note
and the Loan Documents, including this Agreement, and that all
representations and warranties made herein and therein continue
(except to the extent they relate solely to an earlier date) to
be true and correct in all material respects (or specifying the
nature of any change), or if an Event of Default has occurred,
specifying the Event of Default and the nature and status
thereof; (ii) to the extent requested from time to time by the
Bank, specifically affirming compliance of Borrower in all
material respects with any of its representations (except to the
extent they relate solely to an earlier date) or obligations
under said instruments; (iii) setting forth the computation, in
reasonable detail as of the end of each period covered by such
certificate, of compliance with Sections 12(b), (c), (d) and (e);
and (iv) containing or accompanied by such financial or other
details, information and material as the Bank may reasonably
request to evidence such compliance.
(c) Accountants' Certificate. Concurrently with the
furnishing of the annual audited Financial Statement pursuant to
Section 11(a)(i) hereof, Borrower will furnish a statement from
the firm of independent public accountants which prepared such
Financial Statement to the effect that nothing has come to their
attention to cause them to believe that there existed on the date
of such statements any Event of Default.
(d) Taxes and Other Liens. The Borrower will pay and
discharge promptly all taxes, assessments and governmental
charges or levies imposed upon the Borrower or upon the income or
any assets or property of Borrower as well as all claims of any
kind (including claims for labor, materials, supplies and rent)
which, if unpaid, might become a Lien or other encumbrance upon
any or all of the assets or property of Borrower and which could
reasonably be expected to result in a Material Adverse Effect;
provided, however, that Borrower shall not be required to pay any
such tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested in
good faith by appropriate proceedings diligently conducted, levy
and execution thereon have been stayed and continue to be stayed
and if Borrower shall have set up adequate reserves therefor, if
required, under GAAP.
(e) Compliance with Laws. Borrower will observe and
comply, in all material respects, with all applicable laws,
statutes, codes, acts, ordinances, orders, judgments, decrees,
injunctions, rules, regulations, orders and restrictions relating
to environmental standards or controls or to energy regulations
of all federal, state, county, municipal and other governments,
departments, commissions, boards, agencies, courts, authorities,
officials and officers, domestic or foreign.
(f) Further Assurances. The Borrower will cure promptly
any defects in the creation and issuance of the Note and the
execution and delivery of the Note and the Loan Documents,
including this Agreement. The Borrower at its sole expense will
promptly execute and deliver to Bank upon its reasonable request
all such other and further documents, agreements and instruments
in compliance with or accomplishment of the covenants and
agreements in this Agreement, or to correct any omissions in the
Note or more fully to state the obligations set out herein.
(g) Performance of Obligations. The Borrower will pay the
Note and other obligations incurred by it hereunder according to
the reading, tenor and effect thereof and hereof; and Borrower<PAGE>
will do and perform every act and discharge all of the
obligations provided to be performed and discharged by the
Borrower under the Loan Documents, including this Agreement, at
the time or times and in the manner specified.
(h) Insurance. The Borrower now maintain and will continue
to maintain insurance with financially sound and reputable
insurers with respect to its assets against such liabilities,
fires, casualties, risks and contingencies and in such types and
amounts as is customary in the case of persons engaged in the
same or similar businesses and similarly situated. Upon request
of the Bank, the Borrower will furnish or cause to be furnished
to the Bank from time to time a summary of the respective
insurance coverage of each Borrower in form and substance
satisfactory to the Bank, and, if requested, will furnish the
Bank copies of the applicable policies. Upon demand by Bank any
insurance policies covering any such property shall be endorsed
(i) to provide that such policies may not be canceled, reduced or
affected in any manner for any reason without fifteen (15) days
prior notice to Bank, (ii) to provide for insurance against fire,
casualty and other hazards normally insured against, in the
amount of the full value (less a reasonable deductible not to
exceed amounts customary in the industry for similarly situated
business and properties) of the property insured, and (iii) to
provide for such other matters as the Bank may reasonably
require. The Borrower shall at all times maintain adequate
insurance with respect to all of their assets, including but not
limited to, the Oil and Gas Properties or any collateral against
its liability for injury to persons or property, which insurance
shall be by financially sound and reputable insurers and shall
without limitation provide the following coverages:
comprehensive general liability (including coverage for damage to
underground resources and equipment, damage caused by blowouts or
cratering, damage caused by explosion, damage to underground
minerals or resources caused by saline substances, broad form
property damage coverage, broad form coverage for contractually
assumed liabilities and broad form coverage for acts of
independent contractors), worker's compensation and automobile
liability. Additionally, the Borrower shall at all times
maintain adequate insurance with respect to all of its other
assets and wells in accordance with prudent business practices.
(i) Accounts and Records. The Borrower will keep books,
records and accounts in which full, true and correct entries will
be made of all dealings or transactions in relation to its
business and activities, prepared in a manner consistent with
prior years, subject to changes suggested by Borrower's auditors.
(j) Right of Inspection. The Borrower will permit any
officer, employee or agent of the Bank to examine Borrower's
books, records and accounts, and take copies and extracts
therefrom, all at such reasonable times during normal business
hours and as often as the Bank may reasonably request. The Bank
will keep all such information confidential and will not without
prior written consent disclose or reveal the information or any
part thereof to any person other than the Bank's officers,
employees, legal counsel, regulatory authorities or advisors to
whom it is necessary to reveal such information for the purpose
of effectuating the agreements and undertakings specified herein
or as otherwise required by law or in connection with the
enforcement of Bank's rights and remedies under the Note, this
Agreement and the other Loan Documents.
(k) Notice of Certain Events. The Borrower shall promptly
notify the Bank if Borrower learns of the occurrence of (i) any
event which constitutes an Event of Default together with a
detailed statement by Borrower of the steps being taken to cure
the Event of Default; or (ii) any legal, judicial or regulatory
proceedings affecting Borrower, or any of the assets or
properties of Borrower which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect; or
(iii) any dispute between Borrower and any governmental or
regulatory body or any other person or entity which, if adversely
determined, might reasonably be expected to cause a Material
Adverse Effect; or (iv) any other matter which in Borrower's
reasonable opinion could have a Material Adverse Effect.
(l) ERISA Information and Compliance. The Borrower will
promptly furnish to the Bank immediately upon becoming aware of
the occurrence of any "reportable event", as such term is defined
in Section 4043 of ERISA, or of any "prohibited transaction", as
such term is defined in Section 4975 of the Internal Revenue Code
of 1954, as amended, in connection with any Plan or any trust
created thereunder, a written notice signed or the chief
financial officer of Borrower specifying the nature thereof, what
action Borrower is taking or proposes to take with respect
thereto, and, when known, any action taken by the Internal
Revenue Service with respect thereto.
(m) Environmental Reports and Notices. The Borrower will
deliver to the Bank (i) promptly upon its becoming available, one
copy of each report sent by Borrower to any court, governmental
agency or instrumentality pursuant to any Environmental Law, (ii)
notice, in writing, promptly upon Borrower's receipt of notice or
otherwise learning of any claim, demand, action, event,
condition, report or investigation indicating any potential or
actual liability arising in connection with (x) the non-
compliance with or violation of the requirements of any
Environmental Law which reasonably could be expected to have a
Material Adverse Effect; (y) the release or threatened release of
any toxic or hazardous waste into the environment which
reasonably could be expected to have a Material Adverse Effect or
which release Borrower would have a duty to report to any court
or government agency or instrumentality, or (iii) the existence
of any Environmental Lien on any properties or assets of
Borrower, and Borrower shall immediately deliver a copy of any
such notice to Bank.
(n) Compliance and Maintenance. The Borrower will (i)
observe and comply in all material respects with all
Environmental Laws; (ii) except as provided in Subsections 11(o)
and 11(p) below, maintain the Oil and Gas Properties and other
assets and properties in good and workable condition at all times
and make all repairs, replacements, additions, betterments and
improvements to the Oil and Gas Properties and other assets and
properties as are needed and proper so that the business carried
on in connection therewith may be conducted properly and
efficiently at all times in the opinion of the Borrower exercised
in good faith; (iii) take or cause to be taken whatever actions
are necessary or desirable to prevent an event or condition of
default by Borrower under the provisions of any gas purchase or
sales contract or any other contract, agreement or lease
comprising a part of the Oil and Gas Properties or other
collateral security hereunder which default could reasonably be
expected to result in a Material Adverse Effect; and (iv) furnish
Bank upon request evidence satisfactory to Bank that there are no
Liens, claims or encumbrances on the Oil and Gas Properties,
except laborers', vendors', repairmen's, mechanics', worker's, or
materialmen's liens arising by operation of law or incident to
the construction or improvement of property if the obligations
secured thereby are not yet due or are being contested in good
faith by appropriate legal proceedings or Permitted Liens.
(o) Operation of Properties. Except as provided in
Subsection 11(p) and (q) below, the Borrower will operate, or use
reasonable efforts to cause to be operated, all Oil and Gas
Properties in a careful and efficient manner in accordance with
the practice of the industry and in compliance in all material
respects with all applicable laws, rules, and regulations, and in
compliance in all material respects with all applicable proration
and conservation laws of the jurisdiction in which the properties
are situated, and all applicable laws, rules, and regulations, of
every other agency and authority from time to time constituted to
regulate the development and operation of the properties and the
production and sale of hydrocarbons and other minerals therefrom;
provided, however, that the Borrower shall have the right to
contest in good faith by appropriate proceedings, the
applicability or lawfulness of any such law, rule or regulation
and pending such contest may defer compliance therewith, as long
as such deferment shall not subject the properties or any part
thereof to foreclosure or loss.
(p) Compliance with Leases and Other Instruments. The
Borrower will pay or cause to be paid and discharge all rentals,
delay rentals, royalties, production payment, and indebtedness
required to be paid by Borrower (or required to keep unimpaired
in all material respects the rights of Borrower in Oil and Gas
Properties) accruing under, and perform or cause to be performed
in all material respects each and every act, matter, or thing
required of Borrower by each and all of the assignments, deeds,
leases, subleases, contracts, and agreements in any way relating
to Borrower or any of the Oil and Gas Properties and do all other
things necessary of Borrower to keep unimpaired in all material
respects the rights of Borrower thereunder and to prevent the
forfeiture thereof or default thereunder; provided, however, that
nothing in this Agreement shall be deemed to require Borrower to
perpetuate or renew any oil and gas lease or other lease by
payment of rental or delay rental or by commencement or
continuation of operations nor to prevent Borrower from
abandoning or releasing any oil and gas lease or other lease or
well thereon when, in any of such events, in the opinion of
Borrower exercised in good faith, it is not in the best interest
of the Borrower to perpetuate the same.
(q) Certain Additional Assurances Regarding Maintenance and
Operations of Properties. With respect to those Oil and Gas
Properties which are being operated by operators other than the
Borrower, the Borrower shall not be obligated to perform any
undertakings contemplated by the covenants and agreement
contained in Subsections 11(o) or 11(p) hereof which are
performable only by such operators and are beyond the control of
the Borrower; however, the Borrower agrees to promptly take all
reasonable actions available under any operating agreements or
otherwise to bring about the performance of any such material
undertakings required to be performed thereunder.
(r) Title Matters. As to any Oil and Gas Properties
hereafter mortgaged to Bank, Borrower will promptly (but in no
event more than sixty (60) days following such mortgaging),
furnish Bank with title opinions and/or title information
reasonably satisfactory to Bank showing good and defensible title
of Borrower to such Oil and Gas Properties subject only to
Permitted Liens.
(s) Curative Matters. Within ninety (90) days after the
date hereof with respect to matters listed on Schedule "7" and,
thereafter, within sixty (60) days after receipt by Borrower from
Bank or its counsel of written notice of title defects the Bank
reasonably requires to be cured, Borrower shall either (i)
provide such curative information, in form and substance
satisfactory to Bank, or (ii) substitute Oil and Gas Properties
of value and quality satisfactory to the Bank for all of Oil and
Gas Properties for which such title curative was requested but
upon which Borrower elected not to provide such title curative
information, and, within sixty (60) days of such substitution,
provide title opinions or title information satisfactory to the
Bank covering the Oil and Gas Properties so substituted.
(t) Change of Principal Place of Business. Borrower shall
give Bank at least thirty (30) days prior written notice of its
intention to move its principal place of business from the
address set forth in Section 15 hereof.
12. NEGATIVE COVENANTS. A deviation from the provisions of this
Section 12 shall not constitute an Event of Default under this
Agreement if such deviation is consented to in writing by Bank.
Without the prior written consent of Bank, the Borrower will at all
times comply with the covenants contained in this Section 12 from the
date hereof and for so long as the Term Commitment is in existence or
any part of the Term Loan is outstanding.
(a) Negative Pledge. Borrower will not (i) grant, create,
incur, permit or suffer to exist any Lien upon any of its
property or assets, including, without limitation, the
Collateral, now owned or hereafter acquired, except for Permitted
Liens and Liens given to secure Non Recourse Debt of Borrower,
(ii) enter into any sale-and-lease-back transaction, or
(iii) agree with any Person (other than in the Loan Documents)
that Borrower will not grant, create, incur, permit or suffer to
exist any Lien upon any of its property or assets. Anything of
the foregoing or elsewhere in the Loan Documents to the contrary
notwithstanding, it is understood that no Liens, other than
Permitted Liens, are permitted on or with respect to any of the
Collateral.
(b) Current Ratio. The Borrower will not allow its ratio
of Current Assets to Current Liabilities to be less than 1.0 to
1.0 as of the end of any fiscal quarter.
(c) Fixed Charge Coverage Ratio. Borrower will not allow
its ratio of (i) EBIDDA&T plus (ii) Dry Hole Expense for any four
(4) consecutive fiscal quarters ending on or after the Effective
Date, to (ii) current maturities of Funded Debt as of the date of
such computation to be less than 1.5 to 1.0.
(d) Minimum Net Worth. The Borrower's Net Worth will not,
as of the end of any fiscal quarter, ever be less than
$32,500,000.00 at any time.
(e) Debt to Worth Ratio. Borrower will not allow its ratio
of (i) the aggregate of Total Liabilities to (ii) Net Worth at
any time to be greater than 1.0 to 1.0.
(f) Consolidations and Mergers. Borrower will not
consolidate or merge with or into any other Person, except that
Borrower may merge with another Person if Borrower is the
surviving entity in such merger and if, after giving effect
thereto, no Default or Event of Default shall have occurred and
be continuing.
(g) Debts, Guaranties and Other Obligations. Borrower will
not incur, create, assume or in any manner become or be liable in
respect of any indebtedness, nor will Borrower guarantee or
otherwise in any manner become or be liable in respect of any
indebtedness, liabilities or other obligations of any other
Person or Entity, whether by agreement to purchase the
indebtedness of any other Person or Entity or agreement for the
furnishing of funds to any other Person or Entity through the
purchase or lease of goods, supplies or services (or by way of
stock purchase, capital contribution, advance or loan) for the
purpose of paying or discharging the indebtedness of any other
Person or Entity, or otherwise, except that the foregoing
restrictions shall not apply to:
(i) the Note and any renewal or increase thereof, or
other indebtedness of the Borrower heretofore disclosed to
Bank in the Borrower's Financial Statements or on Schedule
"3" hereto; or
(ii) taxes, assessments or other government charges
which are not yet due or are being contested in good faith
by appropriate action promptly initiated and diligently
conducted, if such reserve as shall be required by GAAP
shall have been made therefor and levy and execution thereon
have been stayed and continue to be stayed; or
(iii) indebtedness (other than in connection with a
loan or lending transaction) incurred in the ordinary course
of business, including, but not limited to indebtedness for
drilling, completing, leasing and reworking oil and gas
wells; or
(iv) Permitted Purchase Money Indebtedness; or
(v) Non-Recourse Debt.
(h) Dividends. Borrower will not declare or pay any
dividend, purchase, redeem or otherwise acquire for value any of
its stock now or hereafter outstanding, return any capital to its
stockholders, or make any distribution of its assets to its
stockholders as such, except Permitted Dividends and Redemptions,
provided, however, that no Dividend or Redemption which would be
a Permitted Dividend and Redemption may be paid if immediately
before and after giving effect thereto a Default or Event of
Default shall exist, unless and until such Dividend or Redemption
is consented to by the Bank.
(i) Loans and Advances. Borrower shall not make or permit
to remain outstanding any loans or advances to or in any Person
or Entity, except that the foregoing restriction shall not apply
to:
(i) loans or advances to any Person, the material
details of which have been set forth in the Financial
Statements of the Borrower heretofore furnished to Bank; or
(ii) advances made in the ordinary course of Borrower's
oil and gas business; or
(iii) loans or advances not exceeding in the
aggregate outstanding at any time the amount of $250,000.
(j) Nature of Business. Borrower will not permit any
material change to be made in the character of its business as
carried on at the date hereof.
(k) Transactions with Affiliates. Borrower will not enter
into any transaction with any Affiliate, except transactions upon
terms that are no less favorable to it than would be obtained in
a transaction negotiated at arm's length with an unrelated third
party.
(l) Hedging Transaction. Borrower will not enter into any
Hedging Transactions (i) in amounts which exceed, in the
aggregate, 100% of Borrower's estimated production from proved
producing reserves existing as of the date of the execution of
such Hedging Transactions documentation; or (ii) the terms and
provisions of which could require margin calls; or (iii) which
are secured by any of the Collateral; or (iv) unless otherwise
consented to in writing by the Bank. For the purposes hereof,
the term "Hedging Transactions" shall mean any contract,
agreement or transaction for the hedging or forward sale of crude
oil and/or natural gas including but not limited to transactions
involving swaps, caps, collars, floors, and futures transactions.
(m) Investments. Borrower shall not make any investments
in any person or entity, except such restriction shall not apply
to:
(i) Temporary Cash Investments;
(ii) investments contemplated or permitted by
other provisions of this Agreement; or
(iii) investments in wholly-owned Subsidiaries
which are such on the Effective Date or which become
such after consent or waiver is granted by the Bank.
(n) Amendment to Articles of Incorporation or Bylaws.
Borrower will not permit any amendment to, or any alteration of,
its Articles of Incorporation or Bylaws.
(o) Sale of Assets. Borrower shall not sell, transfer or
otherwise dispose of any of the Collateral, except for
(i) production from oil, gas and mineral properties and other
assets sold in the ordinary course of Borrower's business, or
(ii) during the period between each Determination Date, Oil and
Gas Properties with an aggregate PW 10 value of $500,000 or less,
or (iii) sales or other dispositions of obsolete equipment which
is either no longer needed in the ordinary course of business of
Borrower or is being replaced by equipment of at least comparable
value and utility.
13. EVENTS OF DEFAULT. Any one or more of the following events
shall be considered an "Event of Default" as that term is used herein:
(a) The Borrower shall fail to pay when due or declared due
the principal of, and the interest on, the Note, or any fee or
any other indebtedness of the Borrower incurred pursuant to this
Agreement or any other Loan Document; or
(b) Any representation or warranty made by Borrower under
this Agreement, or in any certificate or statement furnished or
made to Bank pursuant hereto, or in connection herewith, or in
connection with any document furnished hereunder, shall prove to
be untrue in any material respect as of the date on which such
representation or warranty is made (or deemed made), or any
representation, statement (including financial statements),
certificate, report or other data furnished or to be furnished or
made by Borrower under any Loan Document, including this
Agreement, proves to have been untrue in any material respect, as
of the date as of which the facts therein set forth were stated
or certified; or
(c) Default shall be made in the due observance or
performance of any of the covenants or agreements of the Borrower
contained in the Loan Documents, including this Agreement
(excluding covenants contained in Section 12 of the Agreement for
which there is not cure period), and such default shall continue
for more than thirty (30) days; or
(d) Default shall be made in the due observance or
performance of the covenants of Borrower contained in Section 12
of this Agreement; or
(e) Default shall be made in respect of any obligation for
borrowed money in excess of $1,000,000, other than the Note, for
which Borrower is liable (directly, by assumption, as guarantor
or otherwise), or any obligations secured by any mortgage, pledge
or other security interest, lien, charge or encumbrance with
respect thereto, on any asset or property of Borrower or in
respect of any agreement relating to any such obligations unless
Borrower is not liable for same (i.e., unless remedies or
recourse for failure to pay such obligations is limited to
foreclosure of the collateral security therefor), and if such
default shall continue beyond the applicable grace period, if
any; or
(f) Borrower shall commence a voluntary case or other
proceedings seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or
seeking an appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part
of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or
shall take any corporate action authorizing the foregoing; or
(g) An involuntary case or other proceeding, shall be
commenced against Borrower seeking liquidation, reorganization or
other relief with respect to it or its debts under any
bankruptcy, insolvency or similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part
of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of sixty (60)
days; or an order for relief shall be entered against Borrower
under the federal bankruptcy laws as now or hereinafter in
effect; or
(h) A final judgment or order for the payment of money in
excess of $1,000,000 (or judgments or orders aggregating in
excess of $1,000,000) shall be rendered against Borrower and such
judgments or orders shall continue unsatisfied and unstayed for a
period of thirty (30) days; or
(i) In the event the aggregate principal amount outstanding
under the Note shall at any time exceed the Borrowing Base
established for the Note, and the Borrower shall fail to comply
with the provisions of Section 8(b) hereof; or
Upon occurrence of any Event of Default specified in Subsections
13(f) and (g) hereof, the entire principal amount due under the Note
and all interest then accrued thereon, and any other liabilities of
the Borrower hereunder, shall become immediately due and payable all
without notice and without presentment, demand, protest, notice of
protest or dishonor or any other notice of default of any kind, all of
which are hereby expressly waived by the Borrower. In any other Event
of Default, the Bank shall by notice to the Borrower declare the
principal of, and all interest then accrued on, the Note and any other
liabilities hereunder to be forthwith due and payable, whereupon the
same shall forthwith become due and payable without presentment,
demand, protest, notice of intent to accelerate, notice of
acceleration or other notice of any kind, all of which the Borrower
hereby expressly waive, anything contained herein or in the Note to
the contrary notwithstanding. Nothing contained in this Section 13
shall be construed to limit or amend in any way the Events of Default
enumerated in the Note, or any other document executed in connection
with the transaction contemplated herein.
Upon the occurrence and during the continuance of any Event of
Default, the Bank are hereby authorized at any time and from time to
time, without notice to the Borrower (any such notice being expressly
waived by the Borrower), to set-off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by any of the Bank to or
for the credit or the account of the Borrower against any and all of
the indebtedness of the Borrower under the Note and the Loan
Documents, including this Agreement, irrespective of whether or not
the Bank shall have made any demand under the Loan Documents,
including this Agreement or the Note and although such indebtedness
may be unmatured. Any amount set-off by any of the Bank shall be
applied against the indebtedness owed the Bank by the Borrower
pursuant to this Agreement and the Note. The Bank agrees promptly to
notify the Borrower after any such setoff and application, provided
that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of the Bank under this
Section 13 are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which the Bank may have.
14. EXERCISE OF RIGHTS. No failure to exercise, and no delay in
exercising, on the part of the Bank, any right hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any
other right. The rights of the Bank hereunder shall be in addition to
all other rights provided by law. No modification or waiver of any
provision of the Loan Documents, including this Agreement, or the Note
nor consent to departure therefrom, shall be effective unless in
writing, and no such consent or waiver shall extend beyond the
particular case and purpose involved. No notice or demand given in
any case shall constitute a waiver of the right to take other action
in the same, similar or other circumstances without such notice or
demand.
15. NOTICES. Any notices or other communications required or
permitted to be given by this Agreement or any other documents and
instruments referred to herein must be given in writing (which may be
by facsimile transmission) and must be personally delivered or mailed
by prepaid certified or registered mail to the party to whom such
notice or communication is directed at the address of such party as
follows: (a) BORROWER: MAYNARD OIL COMPANY, 8080 N. Central
Expressway, Dallas, Texas 75206, Attention: Glenn R. Moore, President;
and (b) BANK: BANK ONE, TEXAS, N.A., 1717 Main Street, Dallas, Texas
75201, Facsimile No. 214-290-2627, Attention: Jill A. Hachtel, Vice
President. Any such notice or other communication shall be deemed to
have been given (whether actually received or not) on the day it is
personally delivered or delivered by facsimile as aforesaid or, if
mailed, on the third day after it is mailed as aforesaid. Any party
may change its address for purposes of this Agreement by giving notice
of such change to the other party pursuant to this Section 15.
16. EXPENSES. The Borrower shall pay (i) all reasonable and
necessary out-of-pocket expenses of the Bank, including reasonable
fees and disbursements of special counsel for the Bank, in connection
with the preparation of this Agreement, any waiver or consent
hereunder or any amendment hereof or any default or Event of Default
or alleged default or Event of Default hereunder, (ii) all reasonable
and necessary out-of-pocket expenses of the Bank, including reasonable
fees and disbursements of special counsel for the Bank in connection
with the preparation of any participation agreement for a participant
or participants requested by the Borrower or any amendment thereof and
(iii) if a default or an Event of Default occurs, all reasonable and
necessary out-of-pocket expenses incurred by the Bank, including fees
and disbursements of counsel, in connection with such default and
Event of Default and collection and other enforcement proceedings
resulting therefrom. The Borrower shall indemnify the Bank against
any transfer taxes, document taxes, assessments or charges made by any
governmental authority by reason of the execution, delivery and filing
of the Loan Documents.
17. INDEMNITY. The Borrower agrees to indemnify and hold
harmless the Bank and its respective officers, employees, agents,
attorneys and representatives (singularly, an "Indemnified Party", and
collectively, the "Indemnified Parties") from and against any loss,
cost, liability, damage or expense (including the reasonable fees and
out-of-pocket expenses of counsel to the Bank, including all local
counsel hired by such counsel) ("Claim") incurred by the Bank in
investigating or preparing for, defending against, or providing
evidence, producing documents or taking any other action in respect of
any commenced or threatened litigation, administrative proceeding or
investigation under any federal securities law, federal or state
environmental law, or any other statute of any jurisdiction, or any
regulation, or at common law or otherwise, which is alleged to arise
out of or is based upon any acts, practices or omissions or alleged
acts, practices or omissions of the Borrower or their agents or arises
in connection with the duties, obligations or performance of the
Indemnified Parties in negotiating, preparing, executing, accepting,
keeping, completing, countersigning, issuing, selling, delivering,
releasing, assigning, handling, certifying, processing or receiving or
taking any other action with respect to the Loan Documents and all
documents, items and materials contemplated thereby even if any of the
foregoing arises out of an Indemnified Party's ordinary negligence.
The indemnity set forth herein shall be in addition to any other
obligations or liabilities of the Borrower to the Bank hereunder or at
common law or otherwise, and shall survive any termination of this
Agreement, the expiration of the Loan and the payment of all
indebtedness of the Borrower to the Bank hereunder and under the Note,
provided that the Borrower shall have no obligation under this Section
to the Bank with respect to any of the foregoing arising out of the
gross negligence or willful misconduct of the Bank. If any Claim is
asserted against any Indemnified Party, the Indemnified Party shall
endeavor to notify the Borrower of such Claim (but failure to do so
shall not affect the indemnification herein made except to the extent
of the actual harm caused by such failure). The Indemnified Party
shall have the right to employ, at the Borrower's expense, counsel of
the Indemnified Parties' choosing and to control the defense of the
Claim. The Borrower may at their own expense also participate in the
defense of any Claim. Each Indemnified Party may employ separate
counsel in connection with any Claim to the extent such Indemnified
Party believes it reasonably prudent to protect such Indemnified
Party. THE PARTIES INTEND FOR THE PROVISIONS OF THIS SECTION TO APPLY
TO AND PROTECT EACH INDEMNIFIED PARTY FROM THE CONSEQUENCES OF ITS OWN
NEGLIGENCE, WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING,
OR CONCURRING CAUSE OF ANY CLAIM.
18. GOVERNING LAW. THIS AGREEMENT IS BEING EXECUTED AND
DELIVERED, AND IS INTENDED TO BE PERFORMED, IN DALLAS, DALLAS COUNTY,
TEXAS, AND THE SUBSTANTIVE LAWS OF TEXAS SHALL GOVERN THE VALIDITY,
CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND ALL
OTHER DOCUMENTS AND INSTRUMENTS REFERRED TO HEREIN, UNLESS OTHERWISE
SPECIFIED THEREIN.
19. INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under present or future
laws effective during the term of this Agreement, such provisions
shall be fully severable and this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had
never comprised a part of this Agreement, and the remaining provisions
of the Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement.
20. MAXIMUM INTEREST RATE. Regardless of any provisions
contained in this Agreement or in any other documents and instruments
referred to herein, the Bank shall never be deemed to have contracted
for or be entitled to receive, collect or apply as interest on the
Note any amount in excess of the Maximum Rate, and in the event Bank
ever receives, collects or applies as interest any such excess, of if
an acceleration of the maturities of any Note or if any prepayment by
the Borrower result in the Borrower having paid any interest in excess
of the Maximum Rate, such amount which would be excessive interest
shall be applied to the reduction of the unpaid principal balance of
the Note for which such excess was received, collected or applied,
and, if the principal balance of such Note is paid in full, any
remaining excess shall forthwith be paid to the Borrower. All sums
paid or agreed to be paid to the Bank for the use, forbearance or
detention of the indebtedness evidenced by the Note and/or this
Agreement shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of
such indebtedness until payment in full so that the rate or amount of
interest on account of such indebtedness does not exceed the Maximum
Rate. In determining whether or not the interest paid or payable under
any specific contingency exceeds the Maximum Rate of interest
permitted by law, the Borrower and the Bank shall, to the maximum
extent permitted under applicable law, (i) characterize any non-
principal payment as an expense, fee or premium, rather than as
interest; and (ii) exclude voluntary prepayments and the effect
thereof; and (iii) compare the total amount of interest contracted
for, charged or received with the total amount of interest which could
be contracted for, charged or received throughout the entire
contemplated term of the Note at the Maximum Rate.
21. AMENDMENTS. This Agreement may be amended only by an
instrument in writing executed by an authorized officer of the party
against whom such amendment is sought to be enforced.
22. MULTIPLE COUNTERPARTS. This Agreement may be executed in a
number of identical separate counterparts, each of which for all
purposes is to be deemed an original, but all of which shall
constitute, collectively, one agreement. No party to this Agreement
shall be bound hereby until a counterpart of this Agreement has been
executed by all parties hereto.
23. CONFLICT. In the event any term or provision hereof is
inconsistent with or conflicts with any provision of the Loan
Documents, the terms or provisions contained in this Agreement shall
be controlling.
24. SURVIVAL. All covenants, agreements, undertakings,
representations and warranties made in the Loan Documents, including
this Agreement, the Note or other documents and instruments referred
to herein shall survive all closings hereunder and shall not be
affected by any investigation made by any party.<PAGE>
25. PARTIES BOUND. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors, assigns, heirs, legal representatives and estates,
provided, however, that the Borrower may not, without the prior
written consent of the Bank, assign any rights, powers, duties or
obligations hereunder.
26. PARTICIPATIONS. The Bank shall have the right at any time
and from time to time to sell one or more participations in the Note
or any Advance thereunder. To the extent of any such participation
the provisions of this Agreement shall inure to the benefit of, and be
binding on, each participant, including, but not limited to, any
indemnity from Borrower to the Bank. The Borrower shall have no
obligation or liability to and no obligation to negotiate or confer
with, any participant, and Borrower shall be entitled to treat the
Bank as the sole owners of the Note without regard to notice or actual
knowledge of any such participation. Upon the occurrence of a default
or an Event of Default, each participant will have and is hereby
granted the right to setoff against and to appropriate and apply from
time to time, without prior notice to the Borrower or any other party,
any such notice being hereby expressly waived, any and all deposits
(general or special or other indebtedness or claims, direct or
indirect, contingent or otherwise), at any time held or owing by the
participant to or for the credit or account of Borrower against the
payment of the note and any other obligations of the Borrower
hereunder, provided, however, none of the rights granted in this
Section 26 shall apply to any deposits held by any participant
constituting trust funds and so identified to such participant at the
time the applicable deposit account is created. Within five (5)
Business Days after such setoff or appropriation by a participant,
that participant shall give Borrower and Bank written notice thereof.
However, a failure to give such notice will not affect the validity of
this setoff or appropriation.
27. OTHER AGREEMENTS. THIS WRITTEN LOAN AGREEMENT REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
28. FINANCIAL TERMS. All accounting terms used in this
Agreement which are not specifically defined herein shall be construed
in accordance with GAAP.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
Borrower:
MAYNARD OIL COMPANY,
a Delaware corporation
By: --------------------------------
Glenn R. Moore, President
BANK:
BANK ONE, TEXAS, N.A.,<PAGE>
a national banking association
By: ---------------------------------
Jill A. Hachtel, Vice President
EXHIBIT "A"
TERM NOTE
$26,062,500.00 Dallas, Texas December 20, 1995
FOR VALUE RECEIVED, the undersigned MAYNARD OIL COMPANY, a
Delaware corporation (referred to herein as "Borrower") hereby
unconditionally promises to pay to the order of BANK ONE, TEXAS, N.A.,
a national banking association (referred to herein as "Bank"), at its
banking offices in Dallas County, Texas, the principal sum of
TWENTY-SIX MILLION SIXTY TWO THOUSAND FIVE HUNDRED AND NO/100 DOLLARS
($26,062,500.00), in lawful money of the United States of America
together with interest from the date hereof until paid at the rates
specified in the Loan Agreement (as hereinafter defined). All
payments of principal and interest due hereunder are payable at the
offices of Bank at 1717 Main Street, 4th Floor, Bank One Center, P.O.
Box 655415, Dallas, Texas 75265-5415, attention: Energy Department,
or at such other address as Bank shall designate in writing to
Borrower.
The principal and all accrued interest on this Term Note shall be
due and payable in accordance with the terms and provisions of the
Loan Agreement.
This Term Note is executed pursuant to that certain Restated Loan
Agreement dated of even date herewith between Borrower and Bank (the
"Loan Agreement"), and is the Term Note referred to therein. This
Term Note is secured by certain Security Instruments (as such term is
defined in the Loan Agreement) of even date herewith between Borrower
and Bank. Reference is made to the Loan Agreement and the Security
Instruments for a statement of prepayment, rights and obligations of
Borrower, description of the properties mortgaged and assigned, the
nature and extent of such security and the rights of the parties under
the Security Instruments in respect to such security and for a
statement of the terms and conditions under which the due date of this
Term Note may be accelerated. Upon the occurrence of an Event of
Default, as that term is defined in the Loan Agreement and Security
Instruments, the holder hereof (i) may declare forthwith to be
entirely and immediately due and payable the principal balance hereof
and the interest accrued hereon, and (ii) shall have all rights and
remedies of the Bank under the Loan Agreement and Security
Instruments. This Term Note may be prepaid in accordance with the
terms and provisions of the Loan Agreement.
Regardless of any provision contained in this Term Note, the
holder hereof shall never be entitled to receive, collect or apply, as
interest on this Term Note, any amount in excess of the Maximum Rate,
and, if the holder hereof ever receives, collects, or applies as
interest, any such amount which would be excessive interest, it shall
be deemed a partial prepayment of principal and treated hereunder as
such; and, if the indebtedness evidenced hereby is paid in full, any
remaining excess shall forthwith be paid to Borrower. In determining
whether or not the interest paid or payable, under any specific
contingency, exceeds the Maximum Rate, Borrower and the holder hereof
shall, to the maximum extent permitted under applicable law (i)
characterize any non-principal payment as an expense, fee or premium
rather than as interest, (ii) exclude voluntary prepayments and the
effects thereof, and (iii) spread the total amount of interest
throughout the entire contemplated term of the obligations evidenced
by this Term Note and/or referred to in the Loan Agreement so that the
interest rate is uniform throughout the entire term of this Term Note;
provided that, if this Term Note is paid and performed in full prior
to the end of the full contemplated term thereof; and if the interest
received for the actual period of existence thereof exceeds the
Maximum Rate, the holder hereof shall refund to Borrower the amount of
such excess or credit the amount of such excess against the
indebtedness evidenced hereby, and, in such event, the holder hereof
shall not be subject to any penalties provided by any laws for
contracting for, charging, taking, reserving or receiving interest in
excess of the Maximum Rate.
If any payment of principal or interest on this Term Note shall
become due on a Saturday, Sunday or public holiday or while the Bank
is not open for business, such payment shall be made on the next
succeeding business day and such extension of time shall in such case
be included in computing interest in connection with such payment.
If this Term Note is placed in the hands of an attorney for
collection, or if it is collected through any legal proceeding at law
or in equity or in bankruptcy, receivership or other court
proceedings, Borrower agrees to pay all costs of collection,
including, but not limited to, court costs and reasonable attorneys'
fees.
Borrower and each surety, endorser, guarantor and other party
ever liable for payment of any sums of money payable on this Term
Note, jointly and severally waive presentment and demand for payment,
notice of intention to accelerate the maturity, notice of acceleration
of the maturity, protest, notice of protest and nonpayment, as to this
Term Note and as to each and all installments hereof, and agree that
their liability under this Term Note shall not be affected by any
renewal or extension in the time of payment hereof, or in any
indulgences, or by any release or change in any security for the
payment of this Term Note, and hereby consent to any and all renewals,
extensions, indulgences, releases or changes.
This Term Note shall be governed by and construed in accordance
with the applicable laws of the United States of America and the laws
of the State of Texas.
THIS WRITTEN NOTE, THE LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENTS BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN
ORAL AGREEMENTS BETWEEN THE PARTIES.
This Term Note is given in renewal, increase and extension of,
and not in extinguishment of, that certain Renewal Term Note, in the<PAGE>
amount of $16,062,500, executed by Borrower and payable to the order
of Bank, dated March 29, 1995, which Note renewed, extended and
increased, but did not extinguish that certain note dated December 22,
1994, executed by Borrower and payable to the order of Bank, which
December 22, 1994 note renewed and extended but did not extinguish,
that certain note dated October 1, 1990, executed by Borrower and
payable to the order of First City, Dallas-Texas, which October 1,
1990 note was assigned to Bank on February 1, 1993.
EXECUTED as of the ____ day of ___________, 1995.
BORROWER:
MAYNARD OIL COMPANY,
a Delaware corporation
By: -------------------------
Glenn R. Moore,
President
EXHIBIT "B"
CONVERSION/CONTINUATION NOTICE
The undersigned hereby certifies that he is the
of Maynard Oil Company, a Delaware corporation ("Borrower") and that
as such he is authorized to execute this Conversion/Continuation
Notice on behalf of the Borrower. Pursuant to Section 4 of the
Restated Loan Agreement dated as of December 20, 1995 (as same may be
amended, modified, increased, supplemented and/or restated from time
to time (the "Agreement") entered into by and between Borrower and
Bank One, Texas, N.A. ("Bank"), this Conversion/Continuation Notice
("Notice") represents Borrower's election to [insert one or more of
the following]:
[1. Use if converting Eurodollar Loans to Base Rate Loans.]
Convert $ in aggregate principal amount of
Eurodollar Loans with a current Eurodollar Interest Period ending
on , 19 , to Base Rate Loans on , 19 .
[and]
[2. Use if converting Eurodollar Loans to CD Loans.]
Convert $ in aggregate principal amount of
Eurodollar Loans with a current Eurodollar Interest Period ending
on , 19 , to CD Loans on , 19 . The
initial CD Interest Period for such CD Loans is requested to be a
[30] [60] [90] [180] [365/366] day period. [and]
[3. Use if converting Base Rate Loans to Eurodollar Loans.]
Convert $ in aggregate principal amount of Base
Rate Loans to Eurodollar Loans on , 19 . The initial<PAGE>
Eurodollar Interest Period for such Eurodollar Loans is requested
to be a [one] [two] [three] [six] [twelve] month period. [and]
[4. Use if converting Base Rate Loans to CD Loans.]
Convert $ in aggregate principal amount of Base
Rate Loans to CD Loans on , 19 . The initial CD
Interest Period for such CD Loans is requested to be a [30] [60]
[90] [180] [365/366] day period. [and]
[5. Use if converting CD Loans to Eurodollar Loans.]
Convert $ in aggregate principal amount of CD
Loans with a current CD Interest Period ending on ,
19 , to Eurodollar Loans on , 19__. The initial
Eurodollar Interest Period for such Eurodollar Loans is requested
to be a [one] [two] [three] [six] [twelve] month period. [and]
[6. Use if converting CD Loans to Base Rate Loans.]
Convert $___________ in aggregate principal amount of CD Loans
with a current CD Interest Period ending on _________, 19 , to
Base Rate Loans on _________, 19__. [and]
[7.a. Use if continuing CD Loans] or
[7.b. Use with [number 5] and/or [number 6], and [and] if
converting a portion of CD Loans to Eurodollar Loans and/or
Base Rate Loans and continuing the balance as CD Loans.]
Continue as CD Loans $ in aggregate principal
amount of CD Loans with a current CD Interest Period ending
, 19__. The succeeding CD Interest Period is requested to be
a [30] [60] [90] [180] [365/366] day period.
[8.a. Use if continuing Eurodollar Loans] or
[8.b. Use with [number 1] and/or [number 2], and [and] if
converting a portion of Eurodollar Loans to Base Rate Loans
and/or CD Rate Loans and continuing the balance as
Eurodollar Loans.]
Continue as Eurodollar Loans $ in aggregate
principal amount of Eurodollar Loans with a current Eurodollar
Interest Period ending , 19__. The succeeding Interest
Period is requested to be a [one] [two] [three] [six] [twelve]
month period.
[9. Use if converting to or continuing CD Loans and/or Eurodollar
Loans.]
Borrower hereby certifies that no Default or Event of Default has
occurred and is continuing under the Credit Agreement.
Unless otherwise defined herein, terms defined in the Agreement
shall have the same meanings in this Notice.
Dated: ________________, 19__.
MAYNARD OIL COMPANY
a Delaware corporation
By: ------------------------------
Name:
Title:
EXHIBIT "C"
CERTIFICATE OF COMPLIANCE
The undersigned hereby certifies that he is the ______________ of
MAYNARD OIL COMPANY (the "Company") and that as such he is authorized
to execute this Certificate of Compliance on behalf of the Company.
With reference to that certain Restated Loan Agreement, dated as of
December 20, 1995, (as same may be amended, modified, increased,
supplemented and/or restated from time to time, the "Agreement")
entered into between Company and BANK ONE, TEXAS, N.A., the
undersigned further certifies, represents and warrants on behalf of
the Company that as of __________________ all of the following
statements are true and correct (each capitalized term used herein
having the same meaning given to it in the Agreement unless otherwise
specified):
(a) The Company has fulfilled in all material respects its
obligations under the Note and Loan Documents, including the
Agreement, and all representations and warranties made herein and
therein continue (except to the extent they relate solely to an
earlier date) to be true and correct in all material respects [if
the representations and warranties are not true and correct, the
party signing this certificate shall except from the foregoing
statement the matters for which such representations and
warranties are no longer true specifying the nature of any such
change.]
(b) No Event of Default has occurred under the Loan
Documents, including the Agreement [if an Event of Default has
occurred, the party certifying hereto shall specify the facts
constituting the Event of Default and the nature and status
thereof].
(c) To the extent requested from time to time by the Bank,
the certifying party shall specifically affirm compliance of the
Company in all material respects with any of its representations
and warranties (except to the extent they relate solely to an
earlier date) or obligations under said instruments.
(d) Financial Computations (provide calculation as of
the most recently ended fiscal quarter):
(i) Current Ratio;
(ii) Fixed Charge Coverage Ratio;
(iii) Net Worth; and
(iv) Debt to Worth Ratio.
EXECUTED, DELIVERED AND CERTIFIED TO this ______ day of
________________, 19__.
MAYNARD OIL COMPANY
a Delaware corporation
By: ------------------------------
Name:
Title:
SCHEDULE "1"
LIENS
NONE
SCHEDULE "2"
FINANCIAL CONDITION
NONE
SCHEDULE "3"
LIABILITIES
NONE
SCHEDULE "4"
LITIGATION
NONE
SCHEDULE "5"
SUBSIDIARIES
MOC Resources, Inc.
SCHEDULE "6"
ENVIRONMENTAL MATTERS
NONE
SCHEDULE "7"
CURATIVE MATTERS
Exhibit 10.1
MAYNARD OIL COMPANY
1989 STOCK PARTICIPATION PLAN
Section 1. Purpose. The purpose of the Maynard Oil Company
1989 Stock Participation Plan (the "Plan") is to attract and retain
outstanding individuals as officers and key employees of Maynard Oil
Company (the "Company") and its subsidiaries and to furnish incentives to
such persons by providing them opportunities to participate in the growth
and profitability of the Company on advantageous terms as herein
provided.
Section 2. Administration. The Plan shall be administered by
the Board of Directors of the Company. The Board shall interpret the
Plan, prescribe, amend and rescind rules and regulations relating thereto
and make all other determinations necessary or advisable for the
administration of the Plan. Any interpretation or construction by the
Board of any provision of the Plan or of any award granted under it shall
be final. No member of the Board shall be liable for any action or
determination made in good faith with respect to the Plan or any award
granted under it.
Section 3. Participants. Participants in the Plan will
consist of such officers or other key employees of the Company and its
subsidiaries as the Board of Directors in its sole discretion may
designate from time to time to receive awards hereunder. The Board's
designation of a participant in any year shall not require the Board to
designate such person to receive an award in any other year. Nothing in
the Plan or in any award under it shall limit in any way the right of the
Company to terminate any participant's employment at any time, nor confer
upon any employee any right to continue in the employ of the Company for
any period of time.
Section 4. Awards.
(a) Awards under the Plan shall consist of Stock Participation
Units which, subject to Section 6(e) hereof, will entitle a participant
to a cash payment following the participant's termination of employment
for any reason whatsoever ("Termination"), in an amount equal to the
excess, if any, of the Fair Market Value (defined below) of one share of
the Company's common stock ("Common Stock") on the date of Termination
over a price per share to be determined by the Board, multiplied by the
number of Vested Units (defined below) held by the participant on the
date of Termination. Amounts payable under this Section 4(a) will be
paid in twenty-four (24) equal monthly installments without interest
beginning on the first day of the month following the month in which the
Termination occurs.
(b) The amount payable under Section 4(a) will be based on the
number of vested Stock Participation Units ("Vested Units") held by a
participant on the date of Termination. The Board in its sole discretion
shall establish a vesting schedule with respect to each award of Stock
Participation Units hereunder. The Board may also provide for the
acceleration of vesting of Stock Participation Units upon the occurrence
of certain enumerated events, including, but not limited to, a change in
control of the Company or the death, disability, or retirement of the
participant.
(c) Notwithstanding anything to the contrary set forth in this
Plan, upon a change of control of the Company, all outstanding Stock<PAGE>
Participation Units shall terminate and a lump sum payment in cash shall
be made to each participant in an amount equal to the excess, if any, of
the Change of Control Consideration (defined below) over the price per
share set forth in the Award, multiplied by the number of Vested Units
held by such participant. For these purposes, a change of control of the
Company shall mean the sale of all or substantially all of the assets of
the Company or the sale of more than fifty percent (50%) of the
outstanding Common Stock by the Company's current shareholders. Change
of Control Consideration shall mean the value of any consideration
received or to be received for each share of Common Stock in the event of
a sale or exchange of shares of the Company or the liquidation of the
Company incident to a sale of all or substantially all of the assets of
the Company.
Section 5. Fair Market Value. For purposes of this Plan and
any awards granted hereunder, the Fair Market Value of one share of
Common Stock at any date shall be deemed to be the average of the high
and low prices as reported in The Wall Street Journal under the heading
"NASDAQ National Market Issues" (or equivalent recognized source of
quotations) on the date preceding the relevant determination date or, if
not available, on the next preceding date on which such prices are
available.
Section 6. Other Terms and Conditions.
(a) The number of Stock Participation Units awarded to a
participant, and any other terms and conditions of the award not set
forth in the Plan shall be determined by the Board of Directors in its
discretion. Each award under the Plan shall be evidenced by a written
document which shall set forth the number of Stock Participation Units
awarded the participant, the period of vesting and the price per share to
be utilized to measure the appreciation in the Fair Market Value of the
Company's Common Stock.
(b) A participant's rights and interests under the Plan and
any Stock Participation Units granted hereunder may not be assigned or
transferred in any manner. In the event of the death of a participant
any required payments shall be made to the participant's designated
beneficiary or, in the absence of such designation, to the person
entitled thereto by will or by the laws of descent and distribution. Any
payments required under the Plan during a participant's lifetime shall be
made only to the participant.
(c) The Company shall have the right to deduct from all
payments made pursuant to the Plan any federal, state or local taxes
required by law to be withheld with respect to such payments.
(d) The receipt of an award by a participant shall not entitle
the participant to vote, to receive dividends or exercise any of the
other rights of a holder of the Common Stock of the Company.
(e) A participant shall have no right to receive any payment
hereunder and all of his rights with respect to an award shall be
forfeited if he or she shall be dismissed from employment by the Board of
Directors for cause.
Section 7. Adjustments. In the event of any change in the
outstanding shares of Common Stock of the Company by reason of any stock
dividend or split, recapitalization, merger, consolidation, combination
or exchange of shares, or other similar changes in the Common Stock, the
Board of Directors shall make such adjustments in the awards theretofore
granted to the participants as may be deemed necessary or equitable by<PAGE>
the Board. Any such adjustments shall be conclusive and binding for all
purposes of the Plan.
Section 8. Amendment or Termination of the Plan. The Board of
Directors may at any time and from time to time amend, suspend or
terminate the Plan in whole or in part; provided, however, that no such
amendment or termination of the Plan may, without the consent of the
participant to whom any award shall theretofore have been granted,
adversely affect any of the participant's rights with respect to such
award. Notwithstanding anything to the contrary set forth herein, the
Board shall have the right to terminate this Plan at any time by making a
cash payment in cancellation of all Stock Participation Units held by
participants hereof. The date upon which the Board resolves to terminate
this Plan shall be deemed a Termination of each participant's employment
for purposes of determining the amount of payments to be made to each
participant hereunder. Upon the receipt of a payment in cancellation of
outstanding Stock Participation Units, the rights of the participant with
respect to such Stock Participation Units shall cease and be of no
further force or effect.
Section 9. Effective Date; Stockholder Approval. This Plan
was adopted by the Board of Directors of the Company on August 15, 1989.
This Plan and any Stock Participation Units awarded hereunder shall be
null and void if stockholder approval of this Plan is not obtained within
twelve (12) months of the date of adoption hereof by the Board of
Directors.
Exhibit 11.1
<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARIES
Computations of Primary and Fully Diluted Earnings Per Share
Three years ended December 31, 1995
<CAPTION>
Year ended December 31,
COMPUTATIONS OF PRIMARY EARNINGS PER SHARE 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net income $3,023,107 $ 943,216 $2,253,726
========== ========= ==========
Weighted average common shares
outstanding 4,890,708 4,891,592 4,894,829
========== ========= ==========
Net income per common share $.61813 $.19282 $.46043
========== ========= ==========
COMPUTATIONS OF FULLY DILUTED EARNINGS PER SHARE
Net income $3,023,107 $ 943,216 $2,253,726
========== ========= ==========
Weighted average common shares outstanding 4,890,708 4,891,592 4,894,829
========== ========= ==========
Increase in weighted average common shares
outstanding from assumed exercise of
common stock options -- 21,600 37,121
Weighted average common and common
equivalent shares 4,890,708 4,913,192 4,931,950
Net income per common and common
equivalent shares $.61813 $.19198 $.45696
========== ========= ==========
</TABLE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
OF THE COMPANY AS OF
DECEMBER 31, 1995
Percentage of
Jurisdiction of Voting Securities
Name Incorporation Owned by Company
M.O.C. Resources, Inc. Nevada 100
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,139
<SECURITIES> 0
<RECEIVABLES> 3,341
<ALLOWANCES> 43
<INVENTORY> 0
<CURRENT-ASSETS> 9,902
<PP&E> 111,981
<DEPRECIATION> 49,045
<TOTAL-ASSETS> 72,839
<CURRENT-LIABILITIES> 10,272
<BONDS> 0
489
0
<COMMON> 0
<OTHER-SE> 38,615
<TOTAL-LIABILITY-AND-EQUITY> 72,839
<SALES> 20,710
<TOTAL-REVENUES> 20,710
<CGS> 8,443
<TOTAL-COSTS> 16,858
<OTHER-EXPENSES> (1,493)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 991
<INCOME-PRETAX> 4,354
<INCOME-TAX> 1,331
<INCOME-CONTINUING> 3,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,023
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
